Calendar No. 468

To amend the Internal Revenue Code of 1986 to provide tax benefits for small businesses, to amend the Fair Labor Standards Act of 1938 to increase the minimum wage, and for other purposes.

March 23, 2000

HR 3081 PCS

March 20, 2000

Received

March 22, 2000

Read the first time

March 23, 2000

Read the second time and placed on the calendar

To amend the Internal Revenue Code of 1986 to provide tax benefits for small businesses, to amend the Fair Labor Standards Act of 1938 to increase the minimum wage, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Small Business Tax Fairness Act of 2000'.

(b) AMENDMENT OF 1986 CODE- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

(c) TABLE OF CONTENTS- The table of contents of this Act is as follows:

Sec. 1. Short title; references; table of contents.

TITLE I--SMALL BUSINESS PROVISIONS

Sec. 101. Deduction for 100 percent of health insurance costs of self-employed individuals.

Sec. 102. Increase in expense treatment for small businesses.

Sec. 103. Increased deduction for meal expenses.

Sec. 104. Increased deductibility of business meal expenses for individuals subject to Federal limitations on hours of service.

Sec. 105. Income averaging for farmers and fishermen not to increase alternative minimum tax liability.

Sec. 106. Repeal of occupational taxes relating to distilled spirits, wine, and beer.

Sec. 107. Repeal of modification of installment method.

TITLE II--PENSION PROVISIONS

Subtitle A--Expanding Coverage

Sec. 201. Increase in benefit and contribution limits.

Sec. 202. Plan loans for subchapter S owners, partners, and sole proprietors.

Sec. 203. Modification of top-heavy rules.

Sec. 204. Elective deferrals not taken into account for purposes of deduction limits.

Sec. 205. Repeal of coordination requirements for deferred compensation plans of State and local governments and tax-exempt organizations.

Sec. 206. Elimination of user fee for requests to IRS regarding pension plans.

Sec. 207. Deduction limits.

Sec. 208. Option to treat elective deferrals as after-tax contributions.

Subtitle B--Enhancing Fairness for Women

Sec. 221. Catchup contributions for individuals age 50 or over.

Sec. 222. Equitable treatment for contributions of employees to defined contribution plans.

Sec. 223. Faster vesting of certain employer matching contributions.

Sec. 224. Simplify and update the minimum distribution rules.

Sec. 225. Clarification of tax treatment of division of section 457 plan benefits upon divorce.

Sec. 226. Modification of safe harbor relief for hardship withdrawals from cash or deferred arrangements.

Subtitle C--Increasing Portability for Participants

Sec. 231. Rollovers allowed among various types of plans.

Sec. 232. Rollovers of IRAs into workplace retirement plans.

Sec. 233. Rollovers of after-tax contributions.

Sec. 234. Hardship exception to 60-day rule.

Sec. 235. Treatment of forms of distribution.

Sec. 236. Rationalization of restrictions on distributions.

Sec. 237. Purchase of service credit in governmental defined benefit plans.

Sec. 238. Employers may disregard rollovers for purposes of cash-out amounts.

Sec. 239. Minimum distribution and inclusion requirements for section 457 plans.

Subtitle D--Strengthening Pension Security and Enforcement

Sec. 241. Repeal of 150 percent of current liability funding limit.

Sec. 242. Maximum contribution deduction rules modified and applied to all defined benefit plans.

Sec. 243. Excise tax relief for sound pension funding.

Sec. 244. Excise tax on failure to provide notice by defined benefit plans significantly reducing future benefit accruals.

Sec. 245. Treatment of multiemployer plans under section 415.

Subtitle E--Reducing Regulatory Burdens

Sec. 261. Modification of timing of plan valuations.

Sec. 262. ESOP dividends may be reinvested without loss of dividend deduction.

Sec. 263. Repeal of transition rule relating to certain highly compensated employees.

Sec. 264. Employees of tax-exempt entities.

Sec. 265. Clarification of treatment of employer-provided retirement advice.

Sec. 266. Reporting simplification.

Sec. 267. Improvement of employee plans compliance resolution system.

Sec. 268. Modification of exclusion for employer provided transit passes.

Sec. 269. Repeal of the multiple use test.

Sec. 270. Flexibility in nondiscrimination, coverage, and line of business rules.

Sec. 271. Extension to international organizations of moratorium on application of certain nondiscrimination rules applicable to State and local plans.

Sec. 272. Notice and consent period regarding distributions.

Subtitle F--Plan Amendments

Sec. 281. Provisions relating to plan amendments.

TITLE III--ESTATE TAX RELIEF

Subtitle A--Reductions of Estate and Gift Tax Rates

Sec. 301. Reductions of estate and gift tax rates.

Sec. 302. Sense of the Congress concerning repeal of the death tax.

Subtitle B--Unified Credit Replaced With Unified Exemption Amount

Sec. 311. Unified credit against estate and gift taxes replaced with unified exemption amount.

Subtitle C--Modifications of Generation-Skipping Transfer Tax

Sec. 321. Deemed allocation of GST exemption to lifetime transfers to trusts; retroactive allocations.

Sec. 322. Severing of trusts.

Sec. 323. Modification of certain valuation rules.

Sec. 324. Relief provisions.

Subtitle D--Conservation Easements

Sec. 331. Expansion of estate tax rule for conservation easements.

TITLE IV--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

Subtitle A--American Community Renewal Act of 2000

Sec. 401. Short title.

Sec. 402. Designation of and tax incentives for renewal communities.

Sec. 403. Extension of expensing of environmental remediation costs to renewal communities.

Sec. 404. Extension of work opportunity tax credit for renewal communities.

Sec. 405. Conforming and clerical amendments.

Subtitle B--Timber Incentives

Sec. 411. Temporary suspension of maximum amount of amortizable reforestation expenditures.

TITLE V--REAL ESTATE PROVISIONS

Subtitle A--Improvements in Low-Income Housing Credit

Sec. 501. Modification of State ceiling on low-income housing credit.

Sec. 502. Modification of criteria for allocating housing credits among projects.

Sec. 503. Additional responsibilities of housing credit agencies.

Sec. 504. Modifications to rules relating to basis of building which is eligible for credit.

Sec. 505. Other modifications.

Sec. 506. Carryforward rules.

Sec. 507. Effective date.

Subtitle B--Private Activity Bond Volume Cap

Sec. 511. Acceleration of phase-in of increase in volume cap on private activity bonds.

Subtitle C--Exclusion From Gross Income for Certain Forgiven Mortgage Obligations

Sec. 512. Exclusion from gross income for certain forgiven mortgage obligations.

TITLE VI--AMENDMENTS TO THE FAIR LABOR STANDARDS ACT OF 1938

Sec. 601. Short title.

Sec. 602. Minimum Wage.

Sec. 603. Exemption for computer professionals.

Sec. 604. Exemption for certain sales employees.

Sec. 605. Exemption for funeral directors.

TITLE I--SMALL BUSINESS PROVISIONS

SEC. 101. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.

(a) IN GENERAL- Paragraph (1) of section 162(l) is amended to read as follows:

`(1) ALLOWANCE OF DEDUCTION- In the case of an individual who is an employee within the meaning of section 401(c)(1), there shall be allowed as a deduction under this section an amount equal to 100 percent of the amount paid during the taxable year for insurance which constitutes medical care for the taxpayer and the taxpayer's spouse and dependents.'.

(b) CLARIFICATION OF LIMITATIONS ON OTHER COVERAGE- The first sentence of section 162(l)(2)(B) is amended to read as follows: `Paragraph (1) shall not apply to any taxpayer for any calendar month for which the taxpayer participates in any subsidized health plan maintained by any employer (other than an employer described in section 401(c)(4)) of the taxpayer or the spouse of the taxpayer.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

SEC. 102. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

(a) IN GENERAL- Paragraph (1) of section 179(b) (relating to dollar limitation) is amended to read as follows:

`(1) DOLLAR LIMITATION- The aggregate cost which may be taken into account under subsection (a) for any taxable year shall not exceed $30,000.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2000.

SEC. 103. INCREASED DEDUCTION FOR MEAL EXPENSES.

(a) IN GENERAL- Paragraph (1) of section 274(n) (relating to only 50 percent of meal and entertainment expenses allowed as deduction) is amended by striking `50 percent' in the text and inserting `the allowable percentage'.

(b) ALLOWABLE PERCENTAGES- Subsection (n) of section 274 is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by inserting after paragraph (1) the following new paragraph:

`(2) ALLOWABLE PERCENTAGE- For purposes of paragraph (1), the allowable percentage is--

`(A) in the case of amounts for items described in paragraph (1)(B), 50 percent, and

`(B) in the case of expenses for food or beverages, 60 percent (55 percent for taxable years beginning during 2001).'.

(c) CONFORMING AMENDMENT- The heading for subsection (n) of section 274 is amended by striking `50 PERCENT' and inserting `LIMITED PERCENTAGES'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

SEC. 104. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR INDIVIDUALS SUBJECT TO FEDERAL LIMITATIONS ON HOURS OF SERVICE.

(a) IN GENERAL- Paragraph (4) of section 274(n) (relating to limited percentages of meal and entertainment expenses allowed as deduction), as redesignated by section 103, is amended to read as follows:

`(4) SPECIAL RULE FOR INDIVIDUALS SUBJECT TO FEDERAL HOURS OF SERVICE- In the case of any expenses for food or beverages consumed while away from home (within the meaning of section 162(a)(2)) by an individual during, or incident to, the period of duty subject to the hours of service limitations of the Department of Transportation, paragraph (2)(B) shall be applied by substituting `80 percent' for the percentage otherwise applicable under paragraph (2)(B).'.

(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2000.

SEC. 105. INCOME AVERAGING FOR FARMERS AND FISHERMEN NOT TO INCREASE ALTERNATIVE MINIMUM TAX LIABILITY.

(a) IN GENERAL- Section 55(c) (defining regular tax) is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following:

`(2) COORDINATION WITH INCOME AVERAGING FOR FARMERS AND FISHERMEN- Solely for purposes of this section, section 1301 (relating to averaging of farm and fishing income) shall not apply in computing the regular tax.'.

(b) ALLOWING INCOME AVERAGING FOR FISHERMEN-

(1) IN GENERAL- Section 1301(a) is amended by striking `farming business' and inserting `farming business or fishing business,'.

(2) DEFINITION OF ELECTED FARM INCOME-

(A) IN GENERAL- Clause (i) of section 1301(b)(1)(A) is amended by inserting `or fishing business' before the semicolon.

(B) CONFORMING AMENDMENT- Subparagraph (B) of section 1301(b)(1) is amended by inserting `or fishing business' after `farming business' both places it occurs.

(3) DEFINITION OF FISHING BUSINESS- Section 1301(b) is amended by adding at the end the following new paragraph:

`(4) FISHING BUSINESS- The term `fishing business' means the conduct of commercial fishing as defined in section 3 of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1802).'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

SEC. 106. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED SPIRITS, WINE, AND BEER.

(a) REPEAL OF OCCUPATIONAL TAXES-

(1) IN GENERAL- The following provisions of part II of subchapter A of chapter 51 of the Internal Revenue Code of 1986 (relating to occupational taxes) are hereby repealed:

(A) Subpart A (relating to proprietors of distilled spirits plants, bonded wine cellars, etc.).

(B) Subpart B (relating to brewer).

(C) Subpart D (relating to wholesale dealers) (other than sections 5114 and 5116).

(D) Subpart E (relating to retail dealers) (other than section 5124).

(E) Subpart G (relating to general provisions) (other than sections 5142, 5143, 5145, and 5146).

(2) NONBEVERAGE DOMESTIC DRAWBACK- Section 5131 is amended by striking `, on payment of a special tax per annum,'.

(3) INDUSTRIAL USE OF DISTILLED SPIRITS- Section 5276 is hereby repealed.

(b) CONFORMING AMENDMENTS-

(1)(A) The heading for part II of subchapter A of chapter 51 and the table of subparts for such part are amended to read as follows:

`PART II--MISCELLANEOUS PROVISIONS

`Subpart A. Manufacturers of stills.

`Subpart B. Nonbeverage domestic drawback claimants.

`Subpart C. Recordkeeping by dealers.

`Subpart D. Other provisions.'.

(B) The table of parts for such subchapter A is amended by striking the item relating to part II and inserting the following new item:

`Part II. Miscellaneous provisions.'.

(2) Subpart C of part II of such subchapter (relating to manufacturers of stills) is redesignated as subpart A.

(3)(A) Subpart F of such part II (relating to nonbeverage domestic drawback claimants) is redesignated as subpart B and sections 5131 through 5134 are redesignated as sections 5111 through 5114, respectively.

(B) The table of sections for such subpart B, as so redesignated, is amended--

(i) by redesignating the items relating to sections 5131 through 5134 as relating to sections 5111 through 5114, respectively; and

(ii) by striking `and rate of tax' in the item relating to section 5111, as so redesignated.

(C) Section 5111, as redesignated by subparagraph (A), is amended--

(i) by striking `and rate of tax' in the section heading;

(ii) by striking `(a) ELIGIBILITY FOR DRAWBACK- '; and

(iii) by striking subsection (b).

(4) Part II of subchapter A of chapter 51 is amended by adding after subpart B, as redesignated by paragraph (3), the following new subpart:

`Subpart C--Recordkeeping by Dealers

`Sec. 5121. Recordkeeping by wholesale dealers.

`Sec. 5122. Recordkeeping by retail dealers.

`Sec. 5123. Preservation and inspection of records, and entry of premises for inspection.'.

(5)(A) Section 5114 (relating to records) is moved to subpart C of such part II and inserted after the table of sections for such subpart.

(B) Section 5114 is amended--

(i) by striking the section heading and inserting the following new heading:

`SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.';

and

(ii) by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:

`(c) WHOLESALE DEALERS- For purposes of this part--

`(1) WHOLESALE DEALER IN LIQUORS- The term `wholesale dealer in liquors' means any dealer (other than a wholesale dealer in beer) who sells, or offers for sale, distilled spirits, wines, or beer, to another dealer.

`(2) WHOLESALE DEALER IN BEER- The term `wholesale dealer in beer' means any dealer who sells, or offers for sale, beer, but not distilled spirits or wines, to another dealer.

`(3) DEALER- The term `dealer' means any person who sells, or offers for sale, any distilled spirits, wines, or beer.

`(4) PRESUMPTION IN CASE OF SALE OF 20 WINE GALLONS OR MORE- The sale, or offer for sale, of distilled spirits, wines, or beer, in quantities of 20 wine gallons or more to the same person at the same time, shall be presumptive evidence that the person making such sale, or offer for sale, is engaged in or carrying on the business of a wholesale dealer in liquors or a wholesale dealer in beer, as the case may be. Such presumption may be overcome by evidence satisfactorily showing that such sale, or offer for sale, was made to a person other than a dealer.'.

(C) Paragraph (3) of section 5121(d), as so redesignated, is amended by striking `section 5146' and inserting `section 5123'.

(6)(A) Section 5124 (relating to records) is moved to subpart C of part II of subchapter A of chapter 51 and inserted after section 5121.

(B) Section 5124 is amended--

(i) by striking the section heading and inserting the following new heading:

`SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.';

(ii) by striking `section 5146' in subsection (c) and inserting `section 5123'; and

(iii) by redesignating subsection (c) as subsection (d) and inserting after subsection (b) the following new subsection:

`(c) RETAIL DEALERS- For purposes of this section--

`(1) RETAIL DEALER IN LIQUORS- The term `retail dealer in liquors' means any dealer (other than a retail dealer in beer) who sells, or offers for sale, distilled spirits, wines, or beer, to any person other than a dealer.

`(2) RETAIL DEALER IN BEER- The term `retail dealer in beer' means any dealer who sells, or offers for sale, beer, but not distilled spirits or wines, to any person other than a dealer.

`(3) DEALER- The term `dealer' has the meaning given such term by section 5121(c)(3).'.

(7) Section 5146 is moved to subpart C of part II of subchapter A of chapter 51, inserted after section 5122, and redesignated as section 5123.

(8) Part II of subchapter A of chapter 51 is amended by inserting after subpart C the following new subpart:

`Subpart D--Other Provisions

`Sec. 5131. Packaging distilled spirits for industrial uses.

`Sec. 5132. Prohibited purchases by dealers.'.

(9) Section 5116 is moved to subpart D of part II of subchapter A of chapter 51, inserted after the table of sections, redesignated as section 5131, and amended by inserting `(as defined in section 5121(c))' after `dealer' in subsection (a).

(10) Subpart D of part II of subchapter A of chapter 51 is amended by adding at the end thereof the following new section:

`SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

`(a) IN GENERAL- Except as provided in regulations prescribed by the Secretary, it shall be unlawful for a dealer to purchase distilled spirits from any person other than a wholesale dealer in liquors who is required to keep the records prescribed by section 5121.

`(b) PENALTY AND FORFEITURE-

(11) Subsection (b) of section 5002 is amended--

(A) by striking `section 5112(a)' and inserting `section 5121(c)(3)';

(B) by striking `section 5112' and inserting `section 5121(c)'; and

(C) by striking `section 5122' and inserting `section 5122(c)'.

(12) Subparagraph (A) of section 5010(c)(2) is amended by striking `section 5134' and inserting `section 5114'.

(13) Subsection (d) of section 5052 is amended to read as follows:

`(d) BREWER- For purposes of this chapter, the term `brewer' means any person who brews beer or produces beer for sale. Such term shall not include any person who produces only beer exempt from tax under section 5053(e).'.

(14) The text of section 5182 is amended to read as follows:

(15) Subsection (b) of section 5402 is amended by striking `section 5092' and inserting `section 5052(d)'.

(16) Section 5671 is amended by striking `or 5091'.

(17)(A) Part V of subchapter J of chapter 51 is hereby repealed.

(B) The table of parts for such subchapter J is amended by striking the item relating to part V.

(18)(A) Sections 5142, 5143, and 5145 are moved to subchapter D of chapter 52, inserted after section 5731, redesignated as sections 5732, 5733, and 5734, respectively, and amended--

(i) by striking `this part' each place it appears and inserting `this subchapter'; and

(ii) by striking `this subpart' in section 5732(c)(2) (as so redesignated) and inserting `this subchapter'.

(B) Section 5732, as redesignated by subparagraph (A), is amended by striking `(except the tax imposed by section 5131)' each place it appears.

(C) Subsection (c) of section 5733, as redesignated by subparagraph (A), is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).

(D) The table of sections for subchapter D of chapter 52 is amended by adding at the end thereof the following:

`Sec. 5732. Payment of tax.

`Sec. 5733. Provisions relating to liability for occupational taxes.

`Sec. 5734. Application of State laws.'.

(E) Section 5731 is amended by striking subsection (c) and by redesignating subsection (d) as subsection (c).

(19) Subsection (c) of section 6071 is amended by striking `section 5142' and inserting `section 5732'.

(20) Paragraph (1) of section 7652(g) is amended--

(A) by striking `subpart F' and inserting `subpart B'; and

(B) by striking `section 5131(a)' and inserting `section 5111(a)'.

(21) The table of sections for subchapter D of chapter 51 is amended by striking the item relating to section 5276.

(c) EFFECTIVE DATE- The amendments made by this section shall take effect on July 1, 2001, but shall not apply to taxes imposed for periods before such date.

SEC. 107. REPEAL OF MODIFICATION OF INSTALLMENT METHOD.

(a) IN GENERAL- Subsection (a) of section 536 of the Ticket to Work and Work Incentives Improvement Act of 1999 (relating to modification of installment method and repeal of installment method for accrual method taxpayers) is repealed effective with respect to sales and other dispositions occurring on or after the date of the enactment of such Act.

(b) APPLICABILITY- The Internal Revenue Code of 1986 shall be applied and administered as if that subsection (and the amendments made by that subsection) had not been enacted.

TITLE II--PENSION PROVISIONS

Subtitle A--Expanding Coverage

SEC. 201. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

(a) DEFINED BENEFIT PLANS-

(1) DOLLAR LIMIT-

(A) Subparagraph (A) of section 415(b)(1) (relating to limitation for defined benefit plans) is amended by striking `$90,000' and inserting `$160,000'.

(B) Subparagraphs (C) and (D) of section 415(b)(2) are each amended by striking `$90,000' each place it appears in the headings and the text and inserting `$160,000'.

(C) Paragraph (7) of section 415(b) (relating to benefits under certain collectively bargained plans) is amended by striking `the greater of $68,212 or one-half the amount otherwise applicable for such year under paragraph (1)(A) for `$90,000' and inserting `one-half the amount otherwise applicable for such year under paragraph (1)(A) for `$160,000'.

(2) LIMIT REDUCED WHEN BENEFIT BEGINS BEFORE AGE 62- Subparagraph (C) of section 415(b)(2) is amended by striking `the social security retirement age' each place it appears in the heading and text and inserting `age 62'.

(3) LIMIT INCREASED WHEN BENEFIT BEGINS AFTER AGE 65- Subparagraph (D) of section 415(b)(2) is amended by striking `the social security retirement age' each place it appears in the heading and text and inserting `age 65'.

(4) COST-OF-LIVING ADJUSTMENTS- Subsection (d) of section 415 (related to cost-of-living adjustments) is amended--

(A) by striking `$90,000' in paragraph (1)(A) and inserting `$160,000'; and

(B) in paragraph (3)(A)--

(i) by striking `$90,000' in the heading and inserting `$160,000'; and

(ii) by striking `October 1, 1986' and inserting `July 1, 2000'.

(5) CONFORMING AMENDMENT- Section 415(b)(2) is amended by striking subparagraph (F).

(b) DEFINED CONTRIBUTION PLANS-

(1) DOLLAR LIMIT- Subparagraph (A) of section 415(c)(1) (relating to limitation for defined contribution plans) is amended by striking `$30,000' and inserting `$40,000'.

(2) COST-OF-LIVING ADJUSTMENTS- Subsection (d) of section 415 (related to cost-of-living adjustments) is amended--

(A) by striking `$30,000' in paragraph (1)(C) and inserting `$40,000'; and

(B) in paragraph (3)(D)--

(i) by striking `$30,000' in the heading and inserting `$40,000'; and

(ii) by striking `October 1, 1993' and inserting `July 1, 2000'.

(c) QUALIFIED TRUSTS-

(1) COMPENSATION LIMIT- Sections 401(a)(17), 404(l), 408(k), and 505(b)(7) are each amended by striking `$150,000' each place it appears and inserting `$200,000'.

(2) BASE PERIOD AND ROUNDING OF COST-OF-LIVING ADJUSTMENT- Subparagraph (B) of section 401(a)(17) is amended--

(A) by striking `October 1, 1993' and inserting `July 1, 2000'; and

(B) by striking `$10,000' both places it appears and inserting `$5,000'.

(d) ELECTIVE DEFERRALS-

(1) IN GENERAL- Paragraph (1) of section 402(g) (relating to limitation on exclusion for elective deferrals) is amended to read as follows:

`(1) IN GENERAL-

`(A) LIMITATION- Notwithstanding subsections (e)(3) and (h)(1)(B), the elective deferrals of any individual for any taxable year shall be included in such individual's gross income to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount.

`(B) APPLICABLE DOLLAR AMOUNT- For purposes of subparagraph (A), the applicable dollar amount shall be the amount determined in accordance with the following table:

`For taxable years

--The applicable

beginning in

-- dollar amount:

calendar year:

2001

--$11,000

2002

--$12,000

2003

--$13,000

2004 or thereafter

--$14,000.'.

(2) COST-OF-LIVING ADJUSTMENT- Paragraph (5) of section 402(g) is amended to read as follows:

`(5) COST-OF-LIVING ADJUSTMENT- In the case of taxable years beginning after December 31, 2004, the Secretary shall adjust the $14,000 amount under paragraph (1)(B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2003, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.'.

(3) CONFORMING AMENDMENTS-

(A) Section 402(g) (relating to limitation on exclusion for elective deferrals), as amended by paragraphs (1) and (2), is further amended by striking paragraph (4) and redesignating paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), (5), (6), (7), and (8), respectively.

(B) Paragraph (2) of section 457(c) is amended by striking `402(g)(8)(A)(iii)' and inserting `402(g)(7)(A)(iii)'.

(C) Clause (iii) of section 501(c)(18)(D) is amended by striking `(other than paragraph (4) thereof)'.

(e) DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS-

(1) IN GENERAL- Section 457 (relating to deferred compensation plans of State and local governments and tax-exempt organizations) is amended--

(A) in subsections (b)(2)(A) and (c)(1) by striking `$7,500' each place it appears and inserting `the applicable dollar amount'; and

(B) in subsection (b)(3)(A) by striking `$15,000' and inserting `twice the dollar amount in effect under subsection (b)(2)(A)'.

(2) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT- Paragraph (15) of section 457(e) is amended to read as follows:

`(15) APPLICABLE DOLLAR AMOUNT-

`(A) IN GENERAL- The applicable dollar amount shall be the amount determined in accordance with the following table:

`For taxable years

--The applicable

beginning in

-- dollar amount:

calendar year:

2001

--$11,000

2002

--$12,000

2003

--$13,000

2004 or thereafter

--$14,000.

`(B) COST-OF-LIVING ADJUSTMENTS- In the case of taxable years beginning after December 31, 2004, the Secretary shall adjust the $14,000 amount specified in the table in subparagraph (A) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2003, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.'.

(f) SIMPLE RETIREMENT ACCOUNTS-

(1) LIMITATION- Clause (ii) of section 408(p)(2)(A) (relating to general rule for qualified salary reduction arrangement) is amended by striking `$6,000' and inserting `the applicable dollar amount'.

(2) APPLICABLE DOLLAR AMOUNT- Subparagraph (E) of 408(p)(2) is amended to read as follows:

`(E) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT-

`(i) IN GENERAL- For purposes of subparagraph (A)(ii), the applicable dollar amount shall be the amount determined in accordance with the following table:

`For taxable years

--The applicable

beginning in

-- dollar amount:

calendar year:

2001

--$7,000

2002

--$8,000

2003

--$9,000

2004 or thereafter

--$10,000.

`(ii) COST-OF-LIVING ADJUSTMENT- In the case of a year beginning after December 31, 2004, the Secretary shall adjust the $10,000 amount under clause (i) at the same time and in the same manner as under section 415(d), except that the base period taken into account shall be the calendar quarter beginning July 1, 2003, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500.'.

(3) CONFORMING AMENDMENTS-

(A) Clause (I) of section 401(k)(11)(B)(i) is amended by striking `$6,000' and inserting `the amount in effect under section 408(p)(2)(A)(ii)'.

(B) Section 401(k)(11) is amended by striking subparagraph (E).

(g) ROUNDING RULE RELATING TO DEFINED BENEFIT PLANS AND DEFINED CONTRIBUTION PLANS- Paragraph (4) of section 415(d) is amended to read as follows:

`(4) ROUNDING-

`(A) $160,000 AMOUNT- Any increase under subparagraph (A) of paragraph (1) which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.

`(B) $40,000 AMOUNT- Any increase under subparagraph (C) of paragraph (1) which is not a multiple of $1,000 shall be rounded to the next lowest multiple of $1,000.'.

(h) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 2000.

SEC. 202. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE PROPRIETORS.

(a) AMENDMENT TO 1986 CODE- Subparagraph (B) of section 4975(f)(6) (relating to exemptions not to apply to certain transactions) is amended by adding at the end the following new clause:

`(iii) LOAN EXCEPTION- For purposes of subparagraph (A)(i), the term `owner-employee' shall only include a person described in subclause (II) or (III) of clause (i).'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to loans made after December 31, 2000.

SEC. 203. MODIFICATION OF TOP-HEAVY RULES.

(a) SIMPLIFICATION OF DEFINITION OF KEY EMPLOYEE-

(1) IN GENERAL- Section 416(i)(1)(A) (defining key employee) is amended--

(A) by striking `or any of the 4 preceding plan years' in the matter preceding clause (i);

(B) by striking clause (i) and inserting the following:

`(i) an officer of the employer having an annual compensation greater than $150,000,';

(C) by striking clause (ii) and redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively; and

(D) by striking the second sentence in the matter following clause (iii), as redesignated by subparagraph (C).

(2) CONFORMING AMENDMENT- Section 416(i)(1)(B)(iii) is amended by striking `and subparagraph (A)(ii)'.

(b) MATCHING CONTRIBUTIONS TAKEN INTO ACCOUNT FOR MINIMUM CONTRIBUTION REQUIREMENTS- Section 416(c)(2)(A) (relating to defined contribution plans) is amended by adding at the end the following: `Employer matching contributions (as defined in section 401(m)(4)(A)) shall be taken into account for purposes of this subparagraph.'.

(c) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION DATE TAKEN INTO ACCOUNT-

(1) IN GENERAL- Paragraph (3) of section 416(g) is amended to read as follows:

`(3) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION DATE TAKEN INTO ACCOUNT-

`(A) IN GENERAL- For purposes of determining--

`(i) the present value of the cumulative accrued benefit for any employee, or

`(ii) the amount of the account of any employee,

such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group.

`(B) 5-YEAR PERIOD IN CASE OF IN-SERVICE DISTRIBUTION- In the case of any distribution made for a reason other than separation from service, death, or disability, subparagraph (A) shall be applied by substituting `5-year period' for `1-year period'.'.

(2) BENEFITS NOT TAKEN INTO ACCOUNT- Subparagraph (E) of section 416(g)(4) is amended--

(A) by striking `LAST 5 YEARS' in the heading and inserting `LAST YEAR BEFORE DETERMINATION DATE'; and

(B) by striking `5-year period' and inserting `1-year period'.

(d) DEFINITION OF TOP-HEAVY PLANS- Paragraph (4) of section 416(g) (relating to other special rules for top-heavy plans) is amended by adding at the end the following new subparagraph:

`(H) CASH OR DEFERRED ARRANGEMENTS USING ALTERNATIVE METHODS OF MEETING NONDISCRIMINATION REQUIREMENTS- The term `top-heavy plan' shall not include a plan which consists solely of--

`(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12), and

`(ii) matching contributions with respect to which the requirements of section 401(m)(11) are met.

If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection (c)(2).'.

(e) FROZEN PLAN EXEMPT FROM MINIMUM BENEFIT REQUIREMENT- Subparagraph (C) of section 416(c)(1) (relating to defined benefit plans) is amended--

(A) by striking `clause (ii)' in clause (i) and inserting `clause (ii) or (iii)'; and

(B) by adding at the end the following:

`(iii) EXCEPTION FOR FROZEN PLAN- For purposes of determining an employee's years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during a plan year when the plan benefits (within the meaning of section 410(b)) no employee or former employee.'.

(f) ELIMINATION OF FAMILY ATTRIBUTION- Section 416(i)(1)(B) (defining 5-percent owner) is amended by adding at the end the following new clause:

`(iv) FAMILY ATTRIBUTION DISREGARDED- Solely for purposes of applying this paragraph (and not for purposes of any provision of this title which incorporates by reference the definition of a key employee or 5-percent owner under this paragraph), section 318 shall be applied without regard to subsection (a)(1) thereof in determining whether any person is a 5-percent owner.'.

(g) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 2000.

SEC. 204. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF DEDUCTION LIMITS.

(a) IN GENERAL- Section 404 (relating to deduction for contributions of an employer to an employees' trust or annuity plan and compensation under a deferred payment plan) is amended by adding at the end the following new subsection:

`(n) ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF DEDUCTION LIMITS- Elective deferrals (as defined in section 402(g)(3)) shall not be subject to any limitation contained in paragraph (3), (7), or (9) of subsection (a), and such elective deferrals shall not be taken into account in applying any such limitation to any other contributions.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 2000.

SEC. 205. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

(a) IN GENERAL- Subsection (c) of section 457 (relating to deferred compensation plans of State and local governments and tax-exempt organizations), as amended by section 211, is amended to read as follows:

`(c) LIMITATION- The maximum amount of the compensation of any one individual which may be deferred under subsection (a) during any taxable year shall not exceed the amount in effect under subsection (b)(2)(A) (as modified by any adjustment provided under subsection (b)(3)).'.

(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to years beginning after December 31, 2000.

SEC. 206. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION PLANS.

(a) ELIMINATION OF CERTAIN USER FEES- The Secretary of the Treasury or the Secretary's delegate shall not require payment of user fees under the program established under section 7527 of the Internal Revenue Code of 1986 for requests to the Internal Revenue Service for determination letters with respect to the qualified status of a pension benefit plan maintained solely by one or more eligible employers or any trust which is part of the plan. The preceding sentence shall not apply to any request--

(1) made after the fifth plan year the pension benefit plan is in existence; or

(2) made by the sponsor of any prototype or similar plan which the sponsor intends to market to participating employers.

(b) PENSION BENEFIT PLAN- For purposes of this section, the term `pension benefit plan' means a pension, profit-sharing, stock bonus, annuity, or employee stock ownership plan.

(c) ELIGIBLE EMPLOYER- For purposes of this section, the term `eligible employer' has the same meaning given such term in section 408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986. The determination of whether an employer is an eligible employer under this section shall be made as of the date of the request described in subsection (a).

(d) EFFECTIVE DATE- The provisions of this section shall apply with respect to requests made after December 31, 2000.

SEC. 207. DEDUCTION LIMITS.

(a) IN GENERAL- Section 404(a) (relating to general rule) is amended by adding at the end the following:

`(12) DEFINITION OF COMPENSATION- For purposes of paragraphs (3), (7), (8), and (9), the term `compensation' shall include amounts treated as participant's compensation under subparagraph (C) or (D) of section 415(c)(3).'.

(b) CONFORMING AMENDMENT- Subparagraph (B) of section 404(a)(3) is amended by striking the last sentence thereof.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 2000.

SEC. 208. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX CONTRIBUTIONS.

(a) IN GENERAL- Subpart A of part I of subchapter D of chapter 1 (relating to deferred compensation, etc.) is amended by inserting after section 402 the following new section:

`SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS CONTRIBUTIONS.

`(a) GENERAL RULE- If an applicable retirement plan includes a qualified plus contribution program--

`(1) any designated plus contribution made by an employee pursuant to the program shall be treated as an elective deferral for purposes of this chapter, except that such contribution shall not be excludable from gross income, and

`(2) such plan (and any arrangement which is part of such plan) shall not be treated as failing to meet any requirement of this chapter solely by reason of including such program.

`(b) QUALIFIED PLUS CONTRIBUTION PROGRAM- For purposes of this section--

`(1) IN GENERAL- The term `qualified plus contribution program' means a program under which an employee may elect to make designated plus contributions in lieu of all or a portion of elective deferrals the employee is otherwise eligible to make under the applicable retirement plan.

`(2) SEPARATE ACCOUNTING REQUIRED- A program shall not be treated as a qualified plus contribution program unless the applicable retirement plan--

`(A) establishes separate accounts (`designated plus accounts') for the designated plus contributions of each employee and any earnings properly allocable to the contributions, and

`(B) maintains separate recordkeeping with respect to each account.

`(c) DEFINITIONS AND RULES RELATING TO DESIGNATED PLUS CONTRIBUTIONS- For purposes of this section--

`(1) DESIGNATED PLUS CONTRIBUTION- The term `designated plus contribution' means any elective deferral which--

`(A) is excludable from gross income of an employee without regard to this section, and

`(B) the employee designates (at such time and in such manner as the Secretary may prescribe) as not being so excludable.

`(2) DESIGNATION LIMITS- The amount of elective deferrals which an employee may designate under paragraph (1) shall not exceed the excess (if any) of--

`(A) the maximum amount of elective deferrals excludable from gross income of the employee for the taxable year (without regard to this section), over

`(B) the aggregate amount of elective deferrals of the employee for the taxable year which the employee does not designate under paragraph (1).

`(3) ROLLOVER CONTRIBUTIONS-

`(A) IN GENERAL- A rollover contribution of any payment or distribution from a designated plus account which is otherwise allowable under this chapter may be made only if the contribution is to--

`(i) another designated plus account of the individual from whose account the payment or distribution was made, or

`(ii) a Roth IRA of such individual.

`(B) COORDINATION WITH LIMIT- Any rollover contribution to a designated plus account under subparagraph (A) shall not be taken into account for purposes of paragraph (1).

`(d) DISTRIBUTION RULES- For purposes of this title--

`(1) EXCLUSION- Any qualified distribution from a designated plus account shall not be includible in gross income.

`(2) QUALIFIED DISTRIBUTION- For purposes of this subsection--

`(A) IN GENERAL- The term `qualified distribution' has the meaning given such term by section 408A(d)(2)(A) (without regard to clause (iv) thereof).

`(B) DISTRIBUTIONS WITHIN NONEXCLUSION PERIOD- A payment or distribution from a designated plus account shall not be treated as a qualified distribution if such payment or distribution is made within the 5-taxable-year period beginning with the earlier of--

`(i) the first taxable year for which the individual made a designated plus contribution to any designated plus account established for such individual under the same applicable retirement plan, or

`(ii) if a rollover contribution was made to such designated plus account from a designated plus account previously established for such individual under another applicable retirement plan, the first taxable year for which the individual made a designated plus contribution to such previously established account.

`(C) DISTRIBUTIONS OF EXCESS DEFERRALS AND EARNINGS- The term `qualified distribution' shall not include any distribution of any excess deferral under section 402(g)(2) and any income on the excess deferral.

`(3) AGGREGATION RULES- Section 72 shall be applied separately with respect to distributions and payments from a designated plus account and other distributions and payments from the plan.

`(e) OTHER DEFINITIONS- For purposes of this section--

`(1) APPLICABLE RETIREMENT PLAN- The term `applicable retirement plan' means--

`(A) an employees' trust described in section 401(a) which is exempt from tax under section 501(a), and

`(B) a plan under which amounts are contributed by an individual's employer for an annuity contract described in section 403(b).

`(2) ELECTIVE DEFERRAL- The term `elective deferral' means any elective deferral described in subparagraph (A) or (C) of section 402(g)(3).'.

(b) EXCESS DEFERRALS- Section 402(g) (relating to limitation on exclusion for elective deferrals) is amended--

(1) by adding at the end of paragraph (1) the following new sentence: `The preceding sentence shall not apply to so much of such excess as does not exceed the designated plus contributions of the individual for the taxable year.'; and

(2) by inserting `(or would be included but for the last sentence thereof)' after `paragraph (1)' in paragraph (2)(A).

(c) ROLLOVERS- Subparagraph (B) of section 402(c)(8) is amended by adding at the end the following:

`If any portion of an eligible rollover distribution is attributable to payments or distributions from a designated plus account (as defined in section 402A), an eligible retirement plan with respect to such portion shall include only another designated plus account and a Roth IRA.'.

(d) REPORTING REQUIREMENTS-

(1) W-2 INFORMATION- Section 6051(a)(8) is amended by inserting `, including the amount of designated plus contributions (as defined in section 402A)' before the comma at the end.

(2) INFORMATION- Section 6047 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:

`(f) DESIGNATED PLUS CONTRIBUTIONS- The Secretary shall require the plan administrator of each applicable retirement plan (as defined in section 402A) to make such returns and reports regarding designated plus contributions (as so defined) to the Secretary, participants and beneficiaries of the plan, and such other persons as the Secretary may prescribe.'.

(e) CONFORMING AMENDMENTS-

(1) Section 408A(e) is amended by adding after the first sentence the following new sentence: `Such term includes a rollover contribution described in section 402A(c)(3)(A).'.

(2) The table of sections for subpart A of part I of subchapter D of chapter 1 is amended by inserting after the item relating to section 402 the following new item:

`Sec. 402A. Optional treatment of elective deferrals as plus contributions.'.

(f) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

Subtitle B--Enhancing Fairness for Women

SEC. 221. CATCHUP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

(a) IN GENERAL- Section 414 (relating to definitions and special rules) is amended by adding at the end the following new subsection:

`(v) CATCHUP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER-

`(1) IN GENERAL- An applicable employer plan shall not be treated as failing to meet any requirement of this title solely because the plan permits an eligible participant to make additional elective deferrals in any plan year.

`(2) LIMITATION ON AMOUNT OF ADDITIONAL DEFERRALS-

`(A) IN GENERAL- A plan shall not permit additional elective deferrals under paragraph (1) for any year in an amount greater than the lesser of--

`(i) the applicable percentage of the applicable dollar amount for such elective deferrals for such year, or

`(ii) the excess (if any) of--

`(I) the participant's compensation for the year, over

`(II) any other elective deferrals of the participant for such year which are made without regard to this subsection.

`(B) APPLICABLE PERCENTAGE- For purposes of this paragraph, the applicable percentage shall be determined in accordance with the following table:

10 percent

20 percent

30 percent

40 percent.

`(3) TREATMENT OF CONTRIBUTIONS- In the case of any contribution to a plan under paragraph (1)--

`(A) such contribution shall not, with respect to the year in which the contribution is made--

`(i) be subject to any otherwise applicable limitation contained in section 402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or 457, or

`(ii) be taken into account in applying such limitations to other contributions or benefits under such plan or any other such plan, and

`(B) such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k), 408(p), 408B, 410(b), or 416 by reason of the making of (or the right to make) such contribution.

`(4) ELIGIBLE PARTICIPANT- For purposes of this subsection, the term `eligible participant' means, with respect to any plan year, a participant in a plan--

`(A) who has attained the age of 50 before the close of the plan year, and

`(B) with respect to whom no other elective deferrals may (without regard to this subsection) be made to the plan for the plan year by reason of the application of any limitation or other restriction described in paragraph (3) or contained in the terms of the plan.

`(5) OTHER DEFINITIONS AND RULES- For purposes of this subsection--

`(A) APPLICABLE DOLLAR AMOUNT- The term `applicable dollar amount' means, with respect to any year, the amount in effect under section 402(g)(1)(B), 408(p)(2)(E)(i), or 457(e)(15)(A), whichever is applicable to an applicable employer plan, for such year.

`(B) APPLICABLE EMPLOYER PLAN- The term `applicable employer plan' means--

`(i) an employees' trust described in section 401(a) which is exempt from tax under section 501(a),

`(ii) a plan under which amounts are contributed by an individual's employer for an annuity contract described in section 403(b),

`(iii) an eligible deferred compensation plan under section 457 of an eligible employer as defined in section 457(e)(1)(A), and

`(iv) an arrangement meeting the requirements of section 408 (k) or (p).

`(C) ELECTIVE DEFERRAL- The term `elective deferral' has the meaning given such term by subsection (u)(2)(C).

`(D) EXCEPTION FOR SECTION 457 PLANS- This subsection shall not apply to an applicable employer plan described in subparagraph (B)(iii) for any year to which section 457(b)(3) applies.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to contributions in taxable years beginning after December 31, 2000.

SEC. 222. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED CONTRIBUTION PLANS.

(a) EQUITABLE TREATMENT-

(1) IN GENERAL- Subparagraph (B) of section 415(c)(1) (relating to limitation for defined contribution plans) is amended by striking `25 percent' and inserting `100 percent'.

(2) APPLICATION TO SECTION 403(b)- Section 403(b) is amended--

(A) by striking `the exclusion allowance for such taxable year' in paragraph (1) and inserting `the applicable limit under section 415';

(B) by striking paragraph (2); and

(C) by inserting `or any amount received by a former employee after the fifth taxable year following the taxable year in which such employee was terminated' before the period at the end of the second sentence of paragraph (3).

(3) CONFORMING AMENDMENTS-

(A) Subsection (f) of section 72 is amended by striking `section 403(b)(2)(D)(iii))' and inserting `section 403(b)(2)(D)(iii), as in effect before the enactment of the Small Business Tax Fairness Act of 2000)'.

(B) Section 404(a)(10)(B) is amended by striking `, the exclusion allowance under section 403(b)(2),'.

(C) Section 415(a)(2) is amended by striking `, and the amount of the contribution for such portion shall reduce the exclusion allowance as provided in section 403(b)(2)'.

(D) Section 415(c)(3) is amended by adding at the end the following new subparagraph:

`(E) ANNUITY CONTRACTS- In the case of an annuity contract described in section 403(b), the term `participant's compensation' means the participant's includible compensation determined under section 403(b)(3).'.

(E) Section 415(c) is amended by striking paragraph (4).

(F) Section 415(c)(7) is amended to read as follows:

`(7) CERTAIN CONTRIBUTIONS BY CHURCH PLANS NOT TREATED AS EXCEEDING LIMIT-

`(A) IN GENERAL- Notwithstanding any other provision of this subsection, at the election of a participant who is an employee of a church or a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), contributions and other additions for an annuity contract or retirement income account described in section 403(b) with respect to such participant, when expressed as an annual addition to such participant's account, shall be treated as not exceeding the limitation of paragraph (1) if such annual addition is not in excess of $10,000.

`(B) $40,000 AGGREGATE LIMITATION- The total amount of additions with respect to any participant which may be taken into account for purposes of this subparagraph for all years may not exceed $40,000.

`(C) ANNUAL ADDITION- For purposes of this paragraph, the term `annual addition' has the meaning given such term by paragraph (2).'.

(G) Subparagraph (B) of section 402(g)(7) (as redesignated by section 211) is amended by inserting before the period at the end the following: `(as in effect before the enactment of the Small Business Tax Fairness Act of 2000)'.

(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to years beginning after December 31, 2000.

(b) SPECIAL RULES FOR SECTIONS 403(b) AND 408-

(1) IN GENERAL- Subsection (k) of section 415 is amended by adding at the end the following new paragraph:

`(4) SPECIAL RULES FOR SECTIONS 403(b) AND 408- For purposes of this section, any annuity contract described in section 403(b) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (h)). For purposes of this section, any contribution by an employer to a simplified employee pension plan for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year.'.

(2) EFFECTIVE DATE-

(A) IN GENERAL- The amendment made by paragraph (1) shall apply to limitation years beginning after December 31, 1999.

(B) EXCLUSION ALLOWANCE- Effective for limitation years beginning in 2000, in the case of any annuity contract described in section 403(b) of the Internal Revenue Code of 1986, the amount of the contribution disqualified by reason of section 415(g) of such Code shall reduce the exclusion allowance as provided in section 403(b)(2) of such Code.

(3) MODIFICATION OF 403(b) EXCLUSION ALLOWANCE TO CONFORM TO 415 MODIFICATION- The Secretary of the Treasury shall modify the regulations regarding the exclusion allowance under section 403(b)(2) of the Internal Revenue Code of 1986 to render void the requirement that contributions to a defined benefit pension plan be treated as previously excluded amounts for purposes of the exclusion allowance. For taxable years beginning after December 31, 1999, such regulations shall be applied as if such requirement were void.

(c) DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS-

(1) IN GENERAL- Subparagraph (B) of section 457(b)(2) (relating to salary limitation on eligible deferred compensation plans) is amended by striking `33 1/3 percent' and inserting `100 percent'.

(2) EFFECTIVE DATE- The amendment made by this subsection shall apply to years beginning after December 31, 2000.

SEC. 223. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

(a) AMENDMENTS TO 1986 CODE- Section 411(a) (relating to minimum vesting standards) is amended--

(1) in paragraph (2), by striking `A plan' and inserting `Except as provided in paragraph (12), a plan'; and

(2) by adding at the end the following:

`(12) FASTER VESTING FOR MATCHING CONTRIBUTIONS- In the case of matching contributions (as defined in section 401(m)(4)(A)), paragraph (2) shall be applied--

`(A) by substituting `3 years' for `5 years' in subparagraph (A), and

`(B) by substituting the following table for the table contained in subparagraph (B):

20

40

60

80

100.'.

(b) EFFECTIVE DATES-

(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to contributions for plan years beginning after December 31, 2000.

(2) COLLECTIVE BARGAINING AGREEMENTS- In the case of a plan maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers ratified by the date of the enactment of this Act, the amendments made by this section shall not apply to contributions on behalf of employees covered by any such agreement for plan years beginning before the earlier of--

(A) the later of--

(i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof on or after such date of the enactment); or

(ii) January 1, 2001; or

(B) January 1, 2005.

(3) SERVICE REQUIRED- With respect to any plan, the amendments made by this section shall not apply to any employee before the date that such employee has 1 hour of service under such plan in any plan year to which the amendments made by this section apply.

SEC. 224. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.

(a) SIMPLIFICATION AND FINALIZATION OF MINIMUM DISTRIBUTION REQUIREMENTS-

(1) IN GENERAL- The Secretary of the Treasury shall--

(A) simplify and finalize the regulations relating to minimum distribution requirements under sections 401(a)(9), 408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2) of the Internal Revenue Code of 1986; and

(B) modify such regulations to--

(i) reflect current life expectancy; and

(ii) revise the required distribution methods so that, under reasonable assumptions, the amount of the required minimum distribution does not decrease over a participant's life expectancy.

(2) FRESH START- Notwithstanding subparagraph (D) of section 401(a)(9) of such Code, during the first year that regulations are in effect under this subsection, required distributions for future years may be redetermined to reflect changes under such regulations. Such redetermination shall include the opportunity to choose a new designated beneficiary and to elect a new method of calculating life expectancy.

(3) EFFECTIVE DATE FOR REGULATIONS- Regulations referred to in paragraph (1) shall be effective for years beginning after December 31, 2000, and shall apply in such years without regard to whether an individual had previously begun receiving minimum distributions.

(b) REPEAL OF RULE WHERE DISTRIBUTIONS HAD BEGUN BEFORE DEATH OCCURS-

(1) IN GENERAL- Subparagraph (B) of section 401(a)(9) is amended by striking clause (i) and redesignating clauses (ii), (iii), and (iv) as clauses (i), (ii), and (iii), respectively.

(2) CONFORMING CHANGES-

(A) Clause (i) of section 401(a)(9)(B) (as so redesignated) is amended--

(i) by striking `FOR OTHER CASES' in the heading; and

(ii) by striking `the distribution of the employee's interest has begun in accordance with subparagraph (A)(ii)' and inserting `his entire interest has been distributed to him,'.

(B) Clause (ii) of section 401(a)(9)(B) (as so redesignated) is amended by striking `clause (ii)' and inserting `clause (i)'.

(C) Clause (iii) of section 401(a)(9)(B) (as so redesignated) is amended--

(i) by striking `clause (iii)(I)' and inserting `clause (ii)(I)';

(ii) by striking `clause (iii)(III)' in subclause (I) and inserting `clause (ii)(III)';

(iii) by striking `the date on which the employee would have attained the age 70 1/2 ,' in subclause (I) and inserting `April 1 of the calendar year following the calendar year in which the spouse attains 70 1/2 ,'; and

(iv) by striking `the distributions to such spouse begin,' in subclause (II) and inserting `his entire interest has been distributed to him,'.

(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to years beginning after December 31, 2000.

(c) REDUCTION IN EXCISE TAX-

(1) IN GENERAL- Subsection (a) of section 4974 is amended by striking `50 percent' and inserting `10 percent'.

(2) EFFECTIVE DATE- The amendment made by this subsection shall apply to years beginning after December 31, 2000.

SEC. 225. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 PLAN BENEFITS UPON DIVORCE.

(a) IN GENERAL- Section 414(p)(11) (relating to application of rules to governmental and church plans) is amended--

(1) by inserting `or an eligible deferred compensation plan (within the meaning of section 457(b))' after `subsection (e))'; and

(2) in the heading, by striking `GOVERNMENTAL AND CHURCH PLANS' and inserting `CERTAIN OTHER PLANS'.

(b) WAIVER OF CERTAIN DISTRIBUTION REQUIREMENTS- Paragraph (10) of section 414(p) is amended by striking `and section 409(d)' and inserting `section 409(d), and section 457(d)'.

(c) TAX TREATMENT OF PAYMENTS FROM A SECTION 457 PLAN- Subsection (p) of section 414 is amended by redesignating paragraph (12) as paragraph (13) and inserting after paragraph (11) the following new paragraph:

`(12) TAX TREATMENT OF PAYMENTS FROM A SECTION 457 PLAN- If a distribution or payment from an eligible deferred compensation plan described in section 457(b) is made pursuant to a qualified domestic relations order, rules similar to the rules of section 402(e)(1)(A) shall apply to such distribution or payment.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to transfers, distributions, and payments made after December 31, 2000.

SEC. 226. MODIFICATION OF SAFE HARBOR RELIEF FOR HARDSHIP WITHDRAWALS FROM CASH OR DEFERRED ARRANGEMENTS.

(a) IN GENERAL- The Secretary of the Treasury shall revise the regulations relating to hardship distributions under section 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide that the period an employee is prohibited from making elective and employee contributions in order for a distribution to be deemed necessary to satisfy financial need shall be equal to 6 months.

(b) EFFECTIVE DATE- The revised regulations under subsection (a) shall apply to years beginning after December 31, 2000.

Subtitle C--Increasing Portability for Participants

SEC. 231. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

(a) ROLLOVERS FROM AND TO SECTION 457 PLANS-

(1) ROLLOVERS FROM SECTION 457 PLANS-

(A) IN GENERAL- Section 457(e) (relating to other definitions and special rules) is amended by adding at the end the following:

`(16) ROLLOVER AMOUNTS-

`(A) GENERAL RULE- In the case of an eligible deferred compensation plan established and maintained by an employer described in subsection (e)(1)(A), if--

`(i) any portion of the balance to the credit of an employee in such plan is paid to such employee in an eligible rollover distribution (within the meaning of section 402(c)(4) without regard to subparagraph (C) thereof),

`(ii) the employee transfers any portion of the property such employee receives in such distribution to an eligible retirement plan described in section 402(c)(8)(B), and

`(iii) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed,

then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.

`(B) CERTAIN RULES MADE APPLICABLE- The rules of paragraphs (2) through (7) (other than paragraph (4)(C)) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A).

`(C) REPORTING- Rollovers under this paragraph shall be reported to the Secretary in the same manner as rollovers from qualified retirement plans (as defined in section 4974(c)).'.

(B) DEFERRAL LIMIT DETERMINED WITHOUT REGARD TO ROLLOVER AMOUNTS- Section 457(b)(2) (defining eligible deferred compensation plan) is amended by inserting `(other than rollover amounts)' after `taxable year'.

(C) DIRECT ROLLOVER- Paragraph (1) of section 457(d) is amended by striking `and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting `, and', and by inserting after subparagraph (B) the following:

`(C) in the case of a plan maintained by an employer described in subsection (e)(1)(A), the plan meets requirements similar to the requirements of section 401(a)(31).

Any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of transfer.'.

(D) WITHHOLDING-

(i) Paragraph (12) of section 3401(a) is amended by adding at the end the following:

`(E) under or to an eligible deferred compensation plan which, at the time of such payment, is a plan described in section 457(b) maintained by an employer described in section 457(e)(1)(A); or'.

(ii) Paragraph (3) of section 3405(c) is amended to read as follows:

`(3) ELIGIBLE ROLLOVER DISTRIBUTION- For purposes of this subsection, the term `eligible rollover distribution' has the meaning given such term by section 402(f)(2)(A).'.

(iii) LIABILITY FOR WITHHOLDING- Subparagraph (B) of section 3405(d)(2) is amended by striking `or' at the end of clause (ii), by striking the period at the end of clause (iii) and inserting `, or', and by adding at the end the following:

`(iv) section 457(b).'.

(2) ROLLOVERS TO SECTION 457 PLANS-

(A) IN GENERAL- Section 402(c)(8)(B) (defining eligible retirement plan) is amended by striking `and' at the end of clause (iii), by striking the period at the end of clause (iv) and inserting `, and', and by inserting after clause (iv) the following new clause:

`(v) an eligible deferred compensation plan described in section 457(b) of an employer described in section 457(e)(1)(A).'.

(B) SEPARATE ACCOUNTING- Section 402(c) is amended by adding at the end the following new paragraph:

`(11) SEPARATE ACCOUNTING- Unless a plan described in clause (v) of paragraph (8)(B) agrees to separately account for amounts rolled into such plan from eligible retirement plans not described in such clause, the plan described in such clause may not accept transfers or rollovers from such retirement plans.'.

(C) 10 PERCENT ADDITIONAL TAX- Subsection (t) of section 72 (relating to 10-percent additional tax on early distributions from qualified retirement plans) is amended by adding at the end the following new paragraph:

`(9) SPECIAL RULE FOR ROLLOVERS TO SECTION 457 PLANS- For purposes of this subsection, a distribution from an eligible deferred compensation plan (as defined in section 457(b)) of an employer described in section 457(e)(1)(A) shall be treated as a distribution from a qualified retirement plan described in 4974(c)(1) to the extent that such distribution is attributable to an amount transferred to an eligible deferred compensation plan from a qualified retirement plan (as defined in section 4974(c)).'.

(b) ALLOWANCE OF ROLLOVERS FROM AND TO 403 (b) PLANS-

(1) ROLLOVERS FROM SECTION 403 (b) PLANS- Section 403(b)(8)(A)(ii) (relating to rollover amounts) is amended by striking `such distribution' and all that follows and inserting `such distribution to an eligible retirement plan described in section 402(c)(8)(B), and'.

(2) ROLLOVERS TO SECTION 403 (b) PLANS- Section 402(c)(8)(B) (defining eligible retirement plan), as amended by subsection (a), is amended by striking `and' at the end of clause (iv), by striking the period at the end of clause (v) and inserting `, and', and by inserting after clause (v) the following new clause:

`(vi) an annuity contract described in section 403(b).'.

(c) EXPANDED EXPLANATION TO RECIPIENTS OF ROLLOVER DISTRIBUTIONS- Paragraph (1) of section 402(f) (relating to written explanation to recipients of distributions eligible for rollover treatment) is amended by striking `and' at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting `, and', and by adding at the end the following new subparagraph:

`(E) of the provisions under which distributions from the eligible retirement plan receiving the distribution may be subject to restrictions and tax consequences which are different from those applicable to distributions from the plan making such distribution.'.

(d) SPOUSAL ROLLOVERS- Section 402(c)(9) (relating to rollover where spouse receives distribution after death of employee) is amended by striking `; except that' and all that follows up to the end period.

(e) CONFORMING AMENDMENTS-

(1) Section 72(o)(4) is amended by striking `and 408(d)(3)' and inserting `403(b)(8), 408(d)(3), and 457(e)(16)'.

(2) Section 219(d)(2) is amended by striking `or 408(d)(3)' and inserting `408(d)(3), or 457(e)(16)'.

(3) Section 401(a)(31)(B) is amended by striking `and 403(a)(4)' and inserting `, 403(a)(4), 403(b)(8), and 457(e)(16)'.

(4) Subparagraph (A) of section 402(f)(2) is amended by striking `or paragraph (4) of section 403(a)' and inserting `, paragraph (4) of section 403(a), subparagraph (A) of section 403(b)(8), or subparagraph (A) of section 457(e)(16)'.

(5) Paragraph (1) of section 402(f) is amended by striking `from an eligible retirement plan'.

(6) Subparagraphs (A) and (B) of section 402(f)(1) are amended by striking `another eligible retirement plan' and inserting `an eligible retirement plan'.

(7) Subparagraph (B) of section 403(b)(8) is amended to read as follows:

`(B) CERTAIN RULES MADE APPLICABLE- The rules of paragraphs (2) through (7) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A), except that section 402(f) shall be applied to the payor in lieu of the plan administrator.'.

(8) Section 408(a)(1) is amended by striking `or 403(b)(8)' and inserting `, 403(b)(8), or 457(e)(16)'.

(9) Subparagraphs (A) and (B) of section 415(b)(2) are each amended by striking `and 408(d)(3)' and inserting `403(b)(8), 408(d)(3), and 457(e)(16)'.

(10) Section 415(c)(2) is amended by striking `and 408(d)(3)' and inserting `408(d)(3), and 457(e)(16)'.

(11) Section 4973(b)(1)(A) is amended by striking `or 408(d)(3)' and inserting `408(d)(3), or 457(e)(16)'.

(f) EFFECTIVE DATE; SPECIAL RULE-

(1) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2000.

(2) SPECIAL RULE- Notwithstanding any other provision of law, subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act of 1986 shall not apply to any distribution from an eligible retirement plan (as defined in clause (iii) or (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an individual if there was a rollover to such plan on behalf of such individual which is permitted solely by reason of any amendment made by this section.

SEC. 232. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

(a) IN GENERAL- Subparagraph (A) of section 408(d)(3) (relating to rollover amounts) is amended by adding `or' at the end of clause (i), by striking clauses (ii) and (iii), and by adding at the end the following:

`(ii) the entire amount received (including money and any other property) is paid into an eligible retirement plan for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to this paragraph).

For purposes of clause (ii), the term `eligible retirement plan' means an eligible retirement plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B).'.

(b) CONFORMING AMENDMENTS-

(1) Paragraph (1) of section 403(b) is amended by striking `section 408(d)(3)(A)(iii)' and inserting `section 408(d)(3)(A)(ii)'.

(2) Clause (i) of section 408(d)(3)(D) is amended by striking `(i), (ii), or (iii)' and inserting `(i) or (ii)'.

(3) Subparagraph (G) of section 408(d)(3) is amended to read as follows:

`(G) SIMPLE RETIREMENT ACCOUNTS- In the case of any payment or distribution out of a simple retirement account (as defined in subsection (p)) to which section 72(t)(6) applies, this paragraph shall not apply unless such payment or distribution is paid into another simple retirement account.'.

(c) EFFECTIVE DATE; SPECIAL RULE-

(1) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2000.

(2) SPECIAL RULE- Notwithstanding any other provision of law, subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act of 1986 shall not apply to any distribution from an eligible retirement plan (as defined in clause (iii) or (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an individual if there was a rollover to such plan on behalf of such individual which is permitted solely by reason of the amendments made by this section.

SEC. 233. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

(a) ROLLOVERS FROM EXEMPT TRUSTS- Paragraph (2) of section 402(c) (relating to maximum amount which may be rolled over) is amended by adding at the end the following: `The preceding sentence shall not apply to such distribution to the extent--

`(A) such portion is transferred in a direct trustee-to-trustee transfer to a qualified trust which is part of a plan which is a defined contribution plan and which agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or

`(B) such portion is transferred to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B).'.

(b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS- Subparagraph (B) of section 401(a)(31) (relating to limitation) is amended by adding at the end the following: `The preceding sentence shall not apply to such distribution if the plan to which such distribution is transferred--

`(i) agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or

`(ii) is an eligible retirement plan described in clause (i) or (ii) of section 402(c)(8)(B).'.

(c) RULES FOR APPLYING SECTION 72 TO IRAS- Paragraph (3) of section 408(d) (relating to special rules for applying section 72) is amended by inserting at the end the following:

`(H) APPLICATION OF SECTION 72-

`(i) IN GENERAL- If--

`(I) a distribution is made from an individual retirement plan, and

`(II) a rollover contribution is made to an eligible retirement plan described in section 402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to all or part of such distribution,

then, notwithstanding paragraph (2), the rules of clause (ii) shall apply for purposes of applying section 72.

`(ii) APPLICABLE RULES- In the case of a distribution described in clause (i)--

`(I) section 72 shall be applied separately to such distribution,

`(II) notwithstanding the pro rata allocation of income on, and investment in, the contract to distributions under section 72, the portion of such distribution rolled over to an eligible retirement plan described in clause (i) shall be treated as from income on the contract (to the extent of the aggregate income on the contract from all individual retirement plans of the distributee), and

`(III) appropriate adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to distributions made after December 31, 2000.

SEC. 234. HARDSHIP EXCEPTION TO 60-DAY RULE.

(a) EXEMPT TRUSTS- Paragraph (3) of section 402(c) (relating to transfer must be made within 60 days of receipt) is amended to read as follows:

`(3) TRANSFER MUST BE MADE WITHIN 60 DAYS OF RECEIPT-

`(A) IN GENERAL- Except as provided in subparagraph (B), paragraph (1) shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed.

`(B) HARDSHIP EXCEPTION- The Secretary may waive the 60-day requirement under subparagraph (A) where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.'.

(b) IRAS- Paragraph (3) of section 408(d) (relating to rollover contributions), as amended by section 233, is amended by adding after subparagraph (H) the following new subparagraph:

`(I) WAIVER OF 60-DAY REQUIREMENT- The Secretary may waive the 60-day requirement under subparagraphs (A) and (D) where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2000.

SEC. 235. TREATMENT OF FORMS OF DISTRIBUTION.

(a) PLAN TRANSFERS-

(1) AMENDMENT TO INTERNAL REVENUE CODE OF 1986- Paragraph (6) of section 411(d) (relating to accrued benefit not to be decreased by amendment) is amended by adding at the end the following:

`(D) PLAN TRANSFERS-

`(i) A defined contribution plan (in this subparagraph referred to as the `transferee plan') shall not be treated as failing to meet the requirements of this subsection merely because the transferee plan does not provide some or all of the forms of distribution previously available under another defined contribution plan (in this subparagraph referred to as the `transferor plan') to the extent that--

`(I) the forms of distribution previously available under the transferor plan applied to the account of a participant or beneficiary under the transferor plan that was transferred from the transferor plan to the transferee plan pursuant to a direct transfer rather than pursuant to a distribution from the transferor plan,

`(II) the terms of both the transferor plan and the transferee plan authorize the transfer described in subclause (I),

`(III) the transfer described in subclause (I) was made pursuant to a voluntary election by the participant or beneficiary whose account was transferred to the transferee plan,

`(IV) the election described in subclause (III) was made after the participant or beneficiary received a notice describing the consequences of making the election,

`(V) if the transferor plan provides for an annuity as the normal form of distribution under the plan in accordance with section 417, the transfer is made with the consent of the participant's spouse (if any), and such consent meets requirements similar to the requirements imposed by section 417(a)(2), and

`(VI) the transferee plan allows the participant or beneficiary described in clause (iii) to receive any distribution to which the participant or beneficiary is entitled under the transferee plan in the form of a single sum distribution.

`(ii) Clause (i) shall apply to plan mergers and other transactions having the effect of a direct transfer, including consolidations of benefits attributable to different employers within a multiple employer plan.

`(E) ELIMINATION OF FORM OF DISTRIBUTION- Except to the extent provided in regulations, a defined contribution plan shall not be treated as failing to meet the requirements of this section merely because of the elimination of a form of distribution previously available thereunder. This subparagraph shall not apply to the elimination of a form of distribution with respect to any participant unless--

`(i) a single sum payment is available to such participant at the same time or times as the form of distribution being eliminated, and

`(ii) such single sum payment is based on the same or greater portion of the participant's account as the form of distribution being eliminated.'.

(2) EFFECTIVE DATE- The amendment made by this subsection shall apply to years beginning after December 31, 2000.

(b) REGULATIONS-

(1) AMENDMENT TO INTERNAL REVENUE CODE OF 1986- The last sentence of paragraph (6)(B) of section 411(d) (relating to accrued benefit not to be decreased by amendment) is amended to read as follows: `The Secretary shall by regulations provide that this subparagraph shall not apply to any plan amendment that does not adversely affect the rights of participants in a material manner.'.

(2) SECRETARY DIRECTED- Not later than December 31, 2001, the Secretary of the Treasury is directed to issue final regulations under section 411(d)(6) of the Internal Revenue Code of 1986, including the regulations required by the amendments made by this subsection. Such regulations shall apply to plan years beginning after December 31, 2001, or such earlier date as is specified by the Secretary of the Treasury.

SEC. 236. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

(a) MODIFICATION OF SAME DESK EXCEPTION-

(1) SECTION 401(k)-

(A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash or deferred arrangements) is amended by striking `separation from service' and inserting `severance from employment'.

(B) Subparagraph (A) of section 401(k)(10) (relating to distributions upon termination of plan or disposition of assets or subsidiary) is amended to read as follows:

`(A) IN GENERAL- An event described in this subparagraph is the termination of the plan without establishment or maintenance of another defined contribution plan (other than an employee stock ownership plan as defined in section 4975(e)(7)).'.

(C) Section 401(k)(10) is amended--

(i) in subparagraph (B)--

(I) by striking `An event' in clause (i) and inserting `A termination'; and

(II) by striking `the event' in clause (i) and inserting `the termination';

(ii) by striking subparagraph (C); and

(iii) by striking `OR DISPOSITION OF ASSETS OR SUBSIDIARY' in the heading.

(2) SECTION 403(b)-

(A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) are each amended by striking `separates from service' and inserting `has a severance from employment'.

(B) The heading for paragraph (11) of section 403(b) is amended by striking `SEPARATION FROM SERVICE' and inserting `SEVERANCE FROM EMPLOYMENT'.

(3) SECTION 457- Clause (ii) of section 457(d)(1)(A) is amended by striking `is separated from service' and inserting `has a severance from employment'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2000.

SEC. 237. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT PLANS.

(a) 403(b) PLANS- Subsection (b) of section 403 is amended by adding at the end the following new paragraph:

`(13) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT- No amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if such transfer is--

`(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or

`(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.'.

(b) 457 PLANS-

(1) Subsection (e) of section 457 is amended by adding after paragraph (16) the following new paragraph:

`(17) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT- No amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if such transfer is--

`(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or

`(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.'.

(2) Section 457(b)(2) is amended by striking `(other than rollover amounts)' and inserting `(other than rollover amounts and amounts received in a transfer referred to in subsection (e)(17))'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to trustee-to-trustee transfers after December 31, 2000.

SEC. 238. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT AMOUNTS.

(a) QUALIFIED PLANS- Section 411(a)(11) (relating to restrictions on certain mandatory distributions) is amended by adding at the end the following:

`(D) SPECIAL RULE FOR ROLLOVER CONTRIBUTIONS- A plan shall not fail to meet the requirements of this paragraph if, under the terms of the plan, the present value of the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to rollover contributions (and earnings allocable thereto). For purposes of this subparagraph, the term `rollover contributions' means any rollover contribution under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).'.

(b) ELIGIBLE DEFERRED COMPENSATION PLANS- Clause (i) of section 457(e)(9)(A) is amended by striking `such amount' and inserting `the portion of such amount which is not attributable to rollover contributions (as defined in section 411(a)(11)(D))'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2000.

SEC. 239. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 457 PLANS.

(a) MINIMUM DISTRIBUTION REQUIREMENTS- Paragraph (2) of section 457(d) (relating to distribution requirements) is amended to read as follows:

`(2) MINIMUM DISTRIBUTION REQUIREMENTS- A plan meets the minimum distribution requirements of this paragraph if such plan meets the requirements of section 401(a)(9).'.

(b) INCLUSION IN GROSS INCOME-

(1) YEAR OF INCLUSION- Subsection (a) of section 457 (relating to year of inclusion in gross income) is amended to read as follows:

`(a) YEAR OF INCLUSION IN GROSS INCOME-

`(1) IN GENERAL- Any amount of compensation deferred under an eligible deferred compensation plan, and any income attributable to the amounts so deferred, shall be includible in gross income only for the taxable year in which such compensation or other income--

`(A) is paid to the participant or other beneficiary, in the case of a plan of an eligible employer described in subsection (e)(1)(A), and

`(B) is paid or otherwise made available to the participant or other beneficiary, in the case of a plan of an eligible employer described in subsection (e)(1)(B).

`(2) SPECIAL RULE FOR ROLLOVER AMOUNTS- To the extent provided in section 72(t)(9), section 72(t) shall apply to any amount includible in gross income under this subsection.'.

(2) CONFORMING AMENDMENTS-

(A) So much of paragraph (9) of section 457(e) as precedes subparagraph (A) is amended to read as follows:

`(9) BENEFITS OF TAX EXEMPT ORGANIZATION PLANS NOT TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELECTIONS, ETC- In the case of an eligible deferred compensation plan of an employer described in subsection (e)(1)(B)--'.

(B) Section 457(d) is amended by adding at the end the following new paragraph:

`(3) SPECIAL RULE FOR GOVERNMENT PLAN- An eligible deferred compensation plan of an employer described in subsection (e)(1)(A) shall not be treated as failing to meet the requirements of this subsection solely by reason of making a distribution described in subsection (e)(9)(A).'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2000.

Subtitle D--Strengthening Pension Security and Enforcement

SEC. 241. REPEAL OF 150 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

(a) AMENDMENT TO INTERNAL REVENUE CODE OF 1986- Section 412(c)(7) (relating to full-funding limitation) is amended--

(1) by striking `the applicable percentage' in subparagraph (A)(i)(I) and inserting `in the case of plan years beginning before January 1, 2004, the applicable percentage'; and

(2) by amending subparagraph (F) to read as follows:

`(F) APPLICABLE PERCENTAGE- For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined in accordance with the following table:

`In the case of any plan year

--The applicable

beginning in--

--percentage is--

2001

--160

2002

--165

2003

--170.'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning after December 31, 2000.

SEC. 242. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO ALL DEFINED BENEFIT PLANS.

(a) IN GENERAL- Subparagraph (D) of section 404(a)(1) (relating to special rule in case of certain plans) is amended to read as follows:

`(D) SPECIAL RULE IN CASE OF CERTAIN PLANS-

`(i) IN GENERAL- In the case of any defined benefit plan, except as provided in regulations, the maximum amount deductible under the limitations of this paragraph shall not be less than the unfunded termination liability (determined as if the proposed termination date referred to in section 4041(b)(2)(A)(i)(II) of the Employee Retirement Income Security Act of 1974 were the last day of the plan year).

`(ii) PLANS WITH LESS THAN 100 PARTICIPANTS- For purposes of this subparagraph, in the case of a plan which has less than 100 participants for the plan year, termination liability shall not include the liability attributable to benefit increases for highly compensated employees (as defined in section 414(q)) resulting from a plan amendment which is made or becomes effective, whichever is later, within the last 2 years before the termination date.

`(iii) RULE FOR DETERMINING NUMBER OF PARTICIPANTS- For purposes of determining whether a plan has more than 100 participants, all defined benefit plans maintained by the same employer (or any member of such employer's controlled group (within the meaning of section 412(l)(8)(C))) shall be treated as one plan, but only employees of such member or employer shall be taken into account.

`(iv) PLANS ESTABLISHED AND MAINTAIN BY PROFESSIONAL SERVICE EMPLOYERS- Clause (i) shall not apply to a plan described in section 4021(b)(13) of the Employee Retirement Income Security Act of 1974.'.

(b) CONFORMING AMENDMENT- Paragraph (6) of section 4972(c) is amended to read as follows:

`(6) EXCEPTIONS- In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account so much of the contributions to one or more defined contribution plans which are not deductible when contributed solely because of section 404(a)(7) as does not exceed the greater of--

`(A) the amount of contributions not in excess of 6 percent of compensation (within the meaning of section 404(a)) paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the plans, or

`(B) the sum of--

`(i) the amount of contributions described in section 401(m)(4)(A), plus

`(ii) the amount of contributions described in section 402(g)(3)(A).

For purposes of this paragraph, the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to a defined benefit plan and then to amounts described in subparagraph (B).'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning after December 31, 2000.

SEC. 243. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

(a) IN GENERAL- Subsection (c) of section 4972 (relating to nondeductible contributions) is amended by adding at the end the following new paragraph:

`(7) DEFINED BENEFIT PLAN EXCEPTION- In determining the amount of nondeductible contributions for any taxable year, an employer may elect for such year not to take into account any contributions to a defined benefit plan except to the extent that such contributions exceed the full-funding limitation (as defined in section 412(c)(7), determined without regard to subparagraph (A)(i)(I) thereof). For purposes of this paragraph, the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to defined contribution plans and then to amounts described in this paragraph. If an employer makes an election under this paragraph for a taxable year, paragraph (6) shall not apply to such employer for such taxable year.'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 2000.

SEC. 244. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.

(a) AMENDMENT TO 1986 CODE- Chapter 43 (relating to qualified pension, etc., plans) is amended by adding at the end the following new section:

`SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO SATISFY NOTICE REQUIREMENTS.

`(a) IMPOSITION OF TAX- There is hereby imposed a tax on the failure of any applicable pension plan to meet the requirements of subsection (e) with respect to any applicable individual.

`(b) AMOUNT OF TAX-

`(1) IN GENERAL- The amount of the tax imposed by subsection (a) on any failure with respect to any applicable individual shall be $100 for each day in the noncompliance period with respect to such failure.

`(2) NONCOMPLIANCE PERIOD- For purposes of this section, the term `noncompliance period' means, with respect to any failure, the period beginning on the date the failure first occurs and ending on the date the failure is corrected.

`(c) LIMITATIONS ON AMOUNT OF TAX-

`(1) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES- In the case of failures that are due to reasonable cause and not to willful neglect, the tax imposed by subsection (a) for failures during the taxable year of the employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not exceed $500,000. For purposes of the preceding sentence, all multiemployer plans of which the same trust forms a part shall be treated as one plan. For purposes of this paragraph, if not all persons who are treated as a single employer for purposes of this section have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561.

`(2) WAIVER BY SECRETARY- In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive relative to the failure involved.

`(d) LIABILITY FOR TAX- The following shall be liable for the tax imposed by subsection (a):

`(1) In the case of a plan other than a multiemployer plan, the employer.

`(2) In the case of a multiemployer plan, the plan.

`(e) NOTICE REQUIREMENTS FOR PLANS SIGNIFICANTLY REDUCING BENEFIT ACCRUALS-

`(1) IN GENERAL- If an applicable pension plan is amended to provide for a significant reduction in the rate of future benefit accrual, the plan administrator shall provide written notice to each applicable individual (and to each employee organization representing applicable individuals).

`(2) NOTICE- The notice required by paragraph (1) shall be written in a manner calculated to be understood by the average plan participant and shall provide sufficient information (as determined in accordance with regulations prescribed by the Secretary) to allow applicable individuals to understand the effect of the plan amendment.

`(3) TIMING OF NOTICE- Except as provided in regulations, the notice required by paragraph (1) shall be provided within a reasonable time before the effective date of the plan amendment.

`(4) DESIGNEES- Any notice under paragraph (1) may be provided to a person designated, in writing, by the person to which it would otherwise be provided.

`(5) NOTICE BEFORE ADOPTION OF AMENDMENT- A plan shall not be treated as failing to meet the requirements of paragraph (1) merely because notice is provided before the adoption of the plan amendment if no material modification of the amendment occurs before the amendment is adopted.

`(f) APPLICABLE INDIVIDUAL; APPLICABLE PENSION PLAN- For purposes of this section--

`(1) APPLICABLE INDIVIDUAL- The term `applicable individual' means, with respect to any plan amendment--

`(A) any participant in the plan, and

`(B) any beneficiary who is an alternate payee (within the meaning of section 414(p)(8)) under an applicable qualified domestic relations order (within the meaning of section 414(p)(1)(A)),

who may reasonably be expected to be affected by such plan amendment.

`(2) APPLICABLE PENSION PLAN- The term `applicable pension plan' means--

`(A) any defined benefit plan, or

`(B) an individual account plan which is subject to the funding standards of section 412,

which had 100 or more participants who had accrued a benefit, or with respect to whom contributions were made, under the plan (whether or not vested) as of the last day of the plan year preceding the plan year in which the plan amendment becomes effective. Such term shall not include a governmental plan (within the meaning of section 414(d)) or a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made.'.

(b) CLERICAL AMENDMENT- The table of sections for chapter 43 is amended by adding at the end the following new item:

`Sec. 4980F. Failure of applicable plans reducing benefit accruals to satisfy notice requirements.'.

(c) EFFECTIVE DATES-

(1) IN GENERAL- The amendments made by this section shall apply to plan amendments taking effect on or after the date of the enactment of this Act.

(2) TRANSITION- Until such time as the Secretary of the Treasury issues regulations under sections 4980F(e)(2) and (3) of the Internal Revenue Code of 1986 (as added by the amendments made by this section), a plan shall be treated as meeting the requirements of such sections if it makes a good faith effort to comply with such requirements.

(3) SPECIAL RULE- The period for providing any notice required by the amendments made by this section shall not end before the date which is 3 months after the date of the enactment of this Act.

SEC. 245. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

(a) COMPENSATION LIMIT- Paragraph (11) of section 415(b) (relating to limitation for defined benefit plans) is amended to read as follows:

`(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND MULTIEMPLOYER PLANS- In the case of a governmental plan (as defined in section 414(d)) or a multiemployer plan (as defined in section 414(f)), subparagraph (B) of paragraph (1) shall not apply.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 2000.

Subtitle E--Reducing Regulatory Burdens

SEC. 261. MODIFICATION OF TIMING OF PLAN VALUATIONS.

(a) AMENDMENTS TO 1986 CODE- Section 412(c)(9) (relating to annual valuation) is amended--

(1) by striking `For purposes' and inserting the following:

`(A) IN GENERAL- For purposes'; and

(2) by adding at the end the following:

`(B) ELECTION TO USE PRIOR YEAR VALUATION-

`(i) IN GENERAL- Except as provided in clause (ii), if, for any plan year--

`(I) an election is in effect under this subparagraph with respect to a plan, and

`(II) the assets of the plan are not less than 125 percent of the plan's current liability (as defined in paragraph (7)(B)), determined as of the valuation date for the preceding plan year,

then this section shall be applied using the information available as of such valuation date.

`(ii) EXCEPTIONS-

`(I) ACTUAL VALUATION EVERY 3 YEARS- Clause (i) shall not apply for more than 2 consecutive plan years and valuation shall be under subparagraph (A) with respect to any plan year to which clause (i) does not apply by reason of this subclause.

`(II) REGULATIONS- Clause (i) shall not apply to the extent that more frequent valuations are required under the regulations under subparagraph (A).

`(iii) ADJUSTMENTS- Information under clause (i) shall, in accordance with regulations, be actuarially adjusted to reflect significant differences in participants.

`(iv) ELECTION- An election under this subparagraph, once made, shall be irrevocable without the consent of the Secretary.'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning after December 31, 2000.

SEC. 262. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND DEDUCTION.

(a) IN GENERAL- Section 404(k)(2)(A) (defining applicable dividends) is amended by striking `or' at the end of clause (ii), by redesignating clause (iii) as clause (iv), and by inserting after clause (ii) the following new clause:

`(iii) is, at the election of such participants or their beneficiaries--

`(I) payable as provided in clause (i) or (ii), or

`(II) paid to the plan and reinvested in qualifying employer securities, or'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

SEC. 263. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY COMPENSATED EMPLOYEES.

(a) IN GENERAL- Paragraph (4) of section 1114(c) of the Tax Reform Act of 1986 is hereby repealed.

(b) EFFECTIVE DATE- The repeal made by subsection (a) shall apply to plan years beginning after December 31, 2000.

SEC. 264. EMPLOYEES OF TAX-EXEMPT ENTITIES.

(a) IN GENERAL- The Secretary of the Treasury shall modify Treasury Regulations section 1.410(b)-6(g) to provide that employees of an organization described in section 403(b)(1)(A)(i) of the Internal Revenue Code of 1986 who are eligible to make contributions under section 403(b) of such Code pursuant to a salary reduction agreement may be treated as excludable with respect to a plan under section 401(k) or (m) of such Code that is provided under the same general arrangement as a plan under such section 401(k), if--

(1) no employee of an organization described in section 403(b)(1)(A)(i) of such Code is eligible to participate in such section 401(k) plan or section 401(m) plan; and

(2) 95 percent of the employees who are not employees of an organization described in section 403(b)(1)(A)(i) of such Code are eligible to participate in such plan under such section 401(k) or (m).

(b) EFFECTIVE DATE- The modification required by subsection (a) shall apply as of the same date set forth in section 1426(b) of the Small Business Job Protection Act of 1996.

SEC. 265. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT ADVICE.

(a) IN GENERAL- Subsection (a) of section 132 (relating to exclusion from gross income) is amended by striking `or' at the end of paragraph (5), by striking the period at the end of paragraph (6) and inserting `, or', and by adding at the end the following new paragraph:

`(7) qualified retirement planning services.'.

(b) QUALIFIED RETIREMENT PLANNING SERVICES DEFINED- Section 132 is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following:

`(m) QUALIFIED RETIREMENT PLANNING SERVICES-

`(1) IN GENERAL- For purposes of this section, the term `qualified retirement planning services' means any retirement planning service provided to an employee and his spouse by an employer maintaining a qualified employer plan.

`(2) NONDISCRIMINATION RULE- Subsection (a)(7) shall apply in the case of highly compensated employees only if such services are available on substantially the same terms to each member of the group of employees normally provided education and information regarding the employer's qualified employer plan.

`(3) QUALIFIED EMPLOYER PLAN- For purposes of this subsection, the term `qualified employer plan' means a plan, contract, pension, or account described in section 219(g)(5).'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 2000.

SEC. 266. REPORTING SIMPLIFICATION.

(a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR OWNERS AND THEIR SPOUSES-

(1) IN GENERAL- The Secretary of the Treasury shall modify the requirements for filing annual returns with respect to one-participant retirement plans to ensure that such plans with assets of $250,000 or less as of the close of the plan year need not file a return for that year.

(2) ONE-PARTICIPANT RETIREMENT PLAN DEFINED- For purposes of this subsection, the term `one-participant retirement plan' means a retirement plan that--

(A) on the first day of the plan year--

(i) covered only the employer (and the employer's spouse) and the employer owned the entire business (whether or not incorporated); or

(ii) covered only one or more partners (and their spouses) in a business partnership (including partners in an S or C corporation);

(B) meets the minimum coverage requirements of section 410(b) of the Internal Revenue Code of 1986 without being combined with any other plan of the business that covers the employees of the business;

(C) does not provide benefits to anyone except the employer (and the employer's spouse) or the partners (and their spouses);

(D) does not cover a business that is a member of an affiliated service group, a controlled group of corporations, or a group of businesses under common control; and

(E) does not cover a business that leases employees.

(3) OTHER DEFINITIONS- Terms used in paragraph (2) which are also used in section 414 of the Internal Revenue Code of 1986 shall have the respective meanings given such terms by such section.

(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR PLANS WITH FEWER THAN 25 EMPLOYEES- In the case of a retirement plan which covers less than 25 employees on the first day of the plan year and meets the requirements described in subparagraphs (B), (D), and (E) of subsection (a)(2), the Secretary of the Treasury shall provide for the filing of a simplified annual return that is substantially similar to the annual return required to be filed by a one-participant retirement plan.

(c) EFFECTIVE DATE- The provisions of this section shall take effect on January 1, 2001.

SEC. 267. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

The Secretary of the Treasury shall continue to update and improve the Employee Plans Compliance Resolution System (or any successor program) giving special attention to--

(1) increasing the awareness and knowledge of small employers concerning the availability and use of the program;

(2) taking into account special concerns and circumstances that small employers face with respect to compliance and correction of compliance failures;

(3) extending the duration of the self-correction period under the Administrative Policy Regarding Self-Correction for significant compliance failures;

(4) expanding the availability to correct insignificant compliance failures under the Administrative Policy Regarding Self-Correction during audit; and

(5) assuring that any tax, penalty, or sanction that is imposed by reason of a compliance failure is not excessive and bears a reasonable relationship to the nature, extent, and severity of the failure.

SEC. 268. MODIFICATION OF EXCLUSION FOR EMPLOYER PROVIDED TRANSIT PASSES.

(a) IN GENERAL- Section 132(f)(3) (relating to cash reimbursements) is amended by striking the last sentence.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2000.

SEC. 269. REPEAL OF THE MULTIPLE USE TEST.

(a) IN GENERAL- Paragraph (9) of section 401(m) is amended to read as follows:

`(9) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection and subsection (k), including regulations permitting appropriate aggregation of plans and contributions.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 2000.

SEC. 270. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF BUSINESS RULES.

(a) NONDISCRIMINATION-

(1) IN GENERAL- The Secretary of the Treasury shall, by regulation, provide that a plan shall be deemed to satisfy the requirements of section 401(a)(4) of the Internal Revenue Code of 1986 if such plan satisfies the facts and circumstances test under section 401(a)(4) of such Code, as in effect before January 1, 1994, but only if--

(A) the plan satisfies conditions prescribed by the Secretary to appropriately limit the availability of such test; and

(B) the plan is submitted to the Secretary for a determination of whether it satisfies such test.

Subparagraph (B) shall only apply to the extent provided by the Secretary.

(2) EFFECTIVE DATES-

(A) REGULATIONS- The regulation required by paragraph (1) shall apply to years beginning after December 31, 2000.

(B) CONDITIONS OF AVAILABILITY- Any condition of availability prescribed by the Secretary under paragraph (1)(A) shall not apply before the first year beginning not less than 120 days after the date on which such condition is prescribed.

(b) COVERAGE TEST-

(1) IN GENERAL- Section 410(b)(1) (relating to minimum coverage requirements) is amended by adding at the end the following:

`(D) In the case that the plan fails to meet the requirements of subparagraphs (A), (B) and (C), the plan--

`(i) satisfies subparagraph (B), as in effect immediately before the enactment of the Tax Reform Act of 1986,

`(ii) is submitted to the Secretary for a determination of whether it satisfies the requirement described in clause (i), and

`(iii) satisfies conditions prescribed by the Secretary by regulation that appropriately limit the availability of this subparagraph.

Clause (ii) shall apply only to the extent provided by the Secretary.'.

(2) EFFECTIVE DATES-

(A) IN GENERAL- The amendment made by paragraph (1) shall apply to years beginning after December 31, 2000.

(B) CONDITIONS OF AVAILABILITY- Any condition of availability prescribed by the Secretary under regulations prescribed by the Secretary under section 410(b)(1)(D) of the Internal Revenue Code of 1986 shall not apply before the first year beginning not less than 120 days after the date on which such condition is prescribed.

(c) LINE OF BUSINESS RULES- The Secretary of the Treasury shall, on or before December 31, 2000, modify the existing regulations issued under section 414(r) of the Internal Revenue Code of 1986 in order to expand (to the extent that the Secretary determines appropriate) the ability of a pension plan to demonstrate compliance with the line of business requirements based upon the facts and circumstances surrounding the design and operation of the plan, even though the plan is unable to satisfy the mechanical tests currently used to determine compliance.

SEC. 271. EXTENSION TO INTERNATIONAL ORGANIZATIONS OF MORATORIUM ON APPLICATION OF CERTAIN NONDISCRIMINATION RULES APPLICABLE TO STATE AND LOCAL PLANS.

(a) IN GENERAL- Subparagraph (G) of section 401(a)(5), subparagraph (H) of section 401(a)(26), subparagraph (G) of section 401(k)(3), and paragraph (2) of section 1505(d) of the Taxpayer Relief Act of 1997 are each amended by inserting `or by an international organization which is described in section 414(d)' after `or instrumentality thereof)'.

(b) CONFORMING AMENDMENTS-

(1) The headings for subparagraph (G) of section 401(a)(5) and subparagraph (H) of section 401(a)(26) are each amended by inserting `AND INTERNATIONAL ORGANIZATION' after `GOVERNMENTAL'.

(2) Subparagraph (G) of section 401(k)(3) is amended by inserting `STATE AND LOCAL GOVERNMENTAL AND INTERNATIONAL ORGANIZATION PLANS- ' after `(G)'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 2000.

SEC. 272. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

(a) EXPANSION OF PERIOD-

(1) AMENDMENT TO 1986 CODE- Subparagraph (A) of section 417(a)(6) is amended by striking `90-day' and inserting `180-day'.

(2) MODIFICATION OF REGULATIONS- The Secretary of the Treasury shall modify the regulations under sections 402(f), 411(a)(11), and 417 of the Internal Revenue Code of 1986 to substitute `180 days' for `90 days' each place it appears in Treasury Regulations sections 1.402(f)-1, 1.411(a)-11(c), and 1.417(e)-1(b).

(3) EFFECTIVE DATE- The amendment made by paragraph (1) and the modifications required by paragraph (2) shall apply to years beginning after December 31, 2000.

(b) CONSENT REGULATION INAPPLICABLE TO CERTAIN DISTRIBUTIONS-

(1) IN GENERAL- The Secretary of the Treasury shall modify the regulations under section 411(a)(11) of the Internal Revenue Code of 1986 to provide that the description of a participant's right, if any, to defer receipt of a distribution shall also describe the consequences of failing to defer such receipt.

(2) EFFECTIVE DATE- The modifications required by paragraph (1) shall apply to years beginning after December 31, 2000.

Subtitle F--Plan Amendments

SEC. 281. PROVISIONS RELATING TO PLAN AMENDMENTS.

(a) IN GENERAL- If this section applies to any plan or contract amendment--

(1) such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in subsection (b)(2)(A); and

(2) such plan shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of 1986 by reason of such amendment.

(b) AMENDMENTS TO WHICH SECTION APPLIES-

(1) IN GENERAL- This section shall apply to any amendment to any plan or annuity contract which is made--

(A) pursuant to any amendment made by this title, or pursuant to any regulation issued under this title; and

(B) on or before the last day of the first plan year beginning on or after January 1, 2003.

In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), this paragraph shall be applied by substituting `2005' for `2003'.

(2) CONDITIONS- This section shall not apply to any amendment unless--

(A) during the period--

(i) beginning on the date the legislative or regulatory amendment described in paragraph (1)(A) takes effect (or in the case of a plan or contract amendment not required by such legislative or regulatory amendment, the effective date specified by the plan); and

(ii) ending on the date described in paragraph (1)(B) (or, if earlier, the date the plan or contract amendment is adopted),

the plan or contract is operated as if such plan or contract amendment were in effect; and

(B) such plan or contract amendment applies retroactively for such period.

TITLE III--ESTATE TAX RELIEF

Subtitle A--Reductions of Estate and Gift Tax Rates

SEC. 301. REDUCTIONS OF ESTATE AND GIFT TAX RATES.

(a) MAXIMUM RATE OF TAX REDUCED TO 50 PERCENT-

(1) IN GENERAL- The table contained in section 2001(c)(1) is amended by striking the two highest brackets and inserting the following:

`Over $2,500,000

$1,025,800, plus 50% of the excess over $2,500,000.'.

(2) PHASE-IN OF REDUCED RATE- Subsection (c) of section 2001 is amended by adding at the end the following new paragraph:

`(3) PHASE-IN OF REDUCED RATE- In the case of decedents dying, and gifts made, during 2001, the last item in the table contained in paragraph (1) shall be applied by substituting `53%' for `50%'.'.

(b) REPEAL OF PHASEOUT OF GRADUATED RATES- Subsection (c) of section 2001 is amended by striking paragraph (2) and redesignating paragraph (3), as added by subsection (a), as paragraph (2).

(c) ADDITIONAL REDUCTIONS OF RATES OF TAX- Subsection (c) of section 2001, as so amended, is amended by adding at the end the following new paragraph:

`(3) PHASEDOWN OF TAX- In the case of estates of decedents dying, and gifts made, during any calendar year after 2002--

`(A) IN GENERAL- Except as provided in subparagraph (C), the tentative tax under this subsection shall be determined by using a table prescribed by the Secretary (in lieu of using the table contained in paragraph (1)) which is the same as such table; except that--

`(i) each of the rates of tax shall be reduced by the number of percentage points determined under subparagraph (B), and

`(ii) the amounts setting forth the tax shall be adjusted to the extent necessary to reflect the adjustments under clause (i).

`(B) PERCENTAGE POINTS OF REDUCTION-

--The number of

`For calendar year:

--percentage points is:

2003

--1.0

2004

--2.0.

`(C) TABLE FOR YEARS AFTER 2004- The table applicable under this subsection to estates of decedents dying, and gifts made, during calendar year 2004 shall apply to estates of decedents dying, and gifts made, after calendar year 2004.

`(D) COORDINATION WITH CREDIT FOR STATE DEATH TAXES- Rules similar to the rules of subparagraph (A) shall apply to the table contained in section 2011(b) except that the Secretary shall prescribe percentage point reductions which maintain the proportionate relationship (as in effect before any reduction under this paragraph) between the credit under section 2011 and the tax rates under subsection (c).'.

(d) EFFECTIVE DATES-

(1) SUBSECTIONS (a) AND (b)- The amendments made by subsections (a) and (b) shall apply to estates of decedents dying, and gifts made, after December 31, 2000.

(2) SUBSECTION (c)- The amendment made by subsection (c) shall apply to estates of decedents dying, and gifts made, after December 31, 2002.

SEC. 302. SENSE OF THE CONGRESS CONCERNING REPEAL OF THE DEATH TAX.

(a) FINDINGS- Congress finds the following:

(1) The death tax stifles economic growth by taking productive resources out of the private sector, thereby causing unemployment and inhibiting job creation.

(2) The death tax penalizes hard work and entrepreneurial activity by causing the demise of small, family-owned businesses when an owner dies.

(3) The death tax rates in the United States are the second highest among all industrialized nations.

(4) The death tax prevents minorities from gaining an economic foothold in the economy since it limits the inter-generational transfer of wealth, which is critical to establishing a legacy and power base for minorities in our society.

(5) The death tax presents serious challenges for farmers whose value is in their land, not liquid assets, and who must sell land to pay the tax, thereby jeopardizing the future existence of the already-struggling family farm.

(6) The death tax contributes to the development of rural areas by causing farms and ranches to be sold and subdivided.

(7) Previous attempts by Congress to create death tax exemptions have been ineffective due to an inability to legislatively duplicate the complex family relationships that exist in our society.

(8) Increasing entrepreneurship and investment in retirement will bring a whole new class of people under the death tax.

(b) SENSE OF CONGRESS- It is the sense of the Congress that the death tax relief in this Act is considered a first step in our effort to ultimately repeal this onerous tax.

Subtitle B--Unified Credit Replaced With Unified Exemption Amount

SEC. 311. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES REPLACED WITH UNIFIED EXEMPTION AMOUNT.

(a) IN GENERAL-

(1) ESTATE TAX- Subsection (b) of section 2001 (relating to computation of tax) is amended to read as follows:

`(b) COMPUTATION OF TAX-

`(1) IN GENERAL- The tax imposed by this section shall be the amount equal to the excess (if any) of--

`(A) the tentative tax determined under paragraph (2), over

`(B) the aggregate amount of tax which would have been payable under chapter 12 with respect to gifts made by the decedent after December 31, 1976, if the provisions of subsection (c) (as in effect at the decedent's death) had been applicable at the time of such gifts.

`(2) TENTATIVE TAX- For purposes of paragraph (1), the tentative tax determined under this paragraph is a tax computed under subsection (c) on the excess of--

`(A) the sum of--

`(i) the amount of the taxable estate, and

`(ii) the amount of the adjusted taxable gifts, over

`(B) the exemption amount for the calendar year in which the decedent died.

`(3) EXEMPTION AMOUNT- For purposes of paragraph (2), the term `exemption amount' means the amount determined in accordance with the following table:

`In the case of

--The exemption

calendar year:

--amount is:

2001

--$675,000

2002 and 2003

--$700,000

2004

--$850,000

2005

--$950,000

2006 or thereafter

--$1,000,000.

`(4) ADJUSTED TAXABLE GIFTS- For purposes of paragraph (2), the term `adjusted taxable gifts' means the total amount of the taxable gifts (within the meaning of section 2503) made by the decedent after December 31, 1976, other than gifts which are includible in the gross estate of the decedent.'.

(2) GIFT TAX- Subsection (a) of section 2502 (relating to computation of tax) is amended to read as follows:

`(a) COMPUTATION OF TAX-

`(1) IN GENERAL- The tax imposed by section 2501 for each calendar year shall be the amount equal to the excess (if any) of--

`(A) the tentative tax determined under paragraph (2), over

`(B) the tax paid under this section for all prior calendar periods.

`(2) TENTATIVE TAX- For purposes of paragraph (1), the tentative tax determined under this paragraph for a calendar year is a tax computed under section 2001(c) on the excess of--

`(A) the aggregate sum of the taxable gifts for such calendar year and for each of the preceding calendar periods, over

`(B) the exemption amount under section 2001(b)(3) for such calendar year.'.

(b) REPEAL OF UNIFIED CREDITS-

(1) Section 2010 (relating to unified credit against estate tax) is hereby repealed.

(2) Section 2505 (relating to unified credit against gift tax) is hereby repealed.

(c) CONFORMING AMENDMENTS-

(1)(A) Subsection (b) of section 2011 is amended--

(i) by striking `adjusted' in the table; and

(ii) by striking the last sentence.

(B) Subsection (f) of section 2011 is amended by striking `, reduced by the amount of the unified credit provided by section 2010'.

(2) Subsection (a) of section 2012 is amended by striking `and the unified credit provided by section 2010'.

(3) Subparagraph (A) of section 2013(c)(1) is amended by striking `2010,'.

(4) Paragraph (2) of section 2014(b) is amended by striking `2010,'.

(5) Clause (ii) of section 2056A(b)(12)(C) is amended to read as follows:

`(ii) to treat any reduction in the tax imposed by paragraph (1)(A) by reason of the credit allowable under section 2010 (as in effect on the day before the date of the enactment of the Small Business Tax Fairness Act of 2000) or the exemption amount allowable under section 2001(b) with respect to the decedent as a credit under section 2505 (as so in effect) or exemption under section 2521 (as the case may be) allowable to such surviving spouse for purposes of determining the amount of the exemption allowable under section 2521 with respect to taxable gifts made by the surviving spouse during the year in which the spouse becomes a citizen or any subsequent year,'.

(6) Subsection (a) of section 2057 is amended by striking paragraphs (2) and (3) and inserting the following new paragraph:

`(2) MAXIMUM DEDUCTION- The deduction allowed by this section shall not exceed the excess of $1,300,000 over the exemption amount (as defined in section 2001(b)(3)).'.

(7)(A) Subsection (b) of section 2101 is amended amended to read as follows:

`(b) COMPUTATION OF TAX-

`(1) IN GENERAL- The tax imposed by this section shall be the amount equal to the excess (if any) of--

`(A) the tentative tax determined under paragraph (2), over

`(B) a tentative tax computed under section 2001(c) on the amount of the adjusted taxable gifts.

`(2) TENTATIVE TAX- For purposes of paragraph (1), the tentative tax determined under this paragraph is a tax computed under section 2001(c) on the excess of--

`(A) the sum of--

`(i) the amount of the taxable estate, and

`(ii) the amount of the adjusted taxable gifts, over

`(B) the exemption amount for the calendar year in which the decedent died.

`(3) EXEMPTION AMOUNT-

`(A) IN GENERAL- The term `exemption amount' means $60,000.

`(B) RESIDENTS OF POSSESSIONS OF THE UNITED STATES- In the case of a decedent who is considered to be a nonresident not a citizen of the United States under section 2209, the exemption amount under this paragraph shall be the greater of--

`(i) $60,000, or

`(ii) that proportion of $175,000 which the value of that part of the decedent's gross estate which at the time of his death is situated in the United States bears to the value of his entire gross estate wherever situated.

`(C) SPECIAL RULES-

`(i) COORDINATION WITH TREATIES- To the extent required under any treaty obligation of the United States, the exemption amount allowed under this paragraph shall be equal to the amount which bears the same ratio to the exemption amount under section 2001(b)(3) (for the calendar year in which the decedent died) as the value of the part of the decedent's gross estate which at the time of his death is situated in the United States bears to the value of his entire gross estate wherever situated. For purposes of the preceding sentence, property shall not be treated as situated in the United States if such property is exempt from the tax imposed by this subchapter under any treaty obligation of the United States.

`(ii) COORDINATION WITH GIFT TAX EXEMPTION AND UNIFIED CREDIT- If an exemption has been allowed under section 2521 (or a credit has been allowed under section 2505 as in effect on the day before the date of the enactment of the Small Business Tax Fairness Act of 2000) with respect to any gift made by the decedent, each dollar amount contained in subparagraph (A) or (B) or the exemption amount applicable under clause (i) of this subparagraph (whichever applies) shall be reduced by the exemption so allowed under 2521 (or, in the case of such a credit, by the amount of the gift for which the credit was so allowed).'.

(8) Section 2102 is amended by striking subsection (c).

(9)(A) Subsection (a) of section 2107 is amended by adding at the end the following new paragraph:

`(3) LIMITATION ON EXEMPTION AMOUNT- Subparagraphs (B) and (C) of section 2101(b)(3) shall not apply in applying section 2101 for purposes of this section.'.

(B) Subsection (c) of section 2107 is amended--

(i) by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively; and

(ii) by striking the second sentence of paragraph (2) (as so redesignated).

(10) Paragraph (1) of section 6018(a) is amended by striking `the applicable exclusion amount in effect under section 2010(c)' and inserting `the exemption amount under section 2001(b)(3)'.

(11) Subparagraph (A) of section 6601(j)(2) is amended to read as follows:

`(A) the amount of the tentative tax which would be determined under the rate schedule set forth in section 2001(c) if the amount with respect to which such tentative tax is to be computed were $1,000,000, or'.

(12) The table of sections for part II of subchapter A of chapter 11 is amended by striking the item relating to section 2010.

(20) The table of sections for subchapter A of chapter 12 is amended by striking the item relating to section 2505.

(13) The table of sections for subchapter C of chapter 12 is amended by inserting before the item relating to section 2522 the following new item:

`Sec. 2521. Exemption.'.

(d) EFFECTIVE DATE- The amendments made by this section--

(1) insofar as they relate to the tax imposed by chapter 11 of the Internal Revenue Code of 1986, shall apply to estates of decedents dying after December 31, 2000; and

(2) insofar as they relate to the tax imposed by chapter 12 of such Code, shall apply to gifts made after December 31, 2000.

Subtitle C--Modifications of Generation-skipping Transfer Tax

SEC. 321. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME TRANSFERS TO TRUSTS; RETROACTIVE ALLOCATIONS.

(a) IN GENERAL- Section 2632 (relating to special rules for allocation of GST exemption) is amended by redesignating subsection (c) as subsection (e) and by inserting after subsection (b) the following new subsections:

`(c) DEEMED ALLOCATION TO CERTAIN LIFETIME TRANSFERS TO GST TRUSTS-

`(1) IN GENERAL- If any individual makes an indirect skip during such individual's lifetime, any unused portion of such individual's GST exemption shall be allocated to the property transferred to the extent necessary to make the inclusion ratio for such property zero. If the amount of the indirect skip exceeds such unused portion, the entire unused portion shall be allocated to the property transferred.

`(2) UNUSED PORTION- For purposes of paragraph (1), the unused portion of an individual's GST exemption is that portion of such exemption which has not previously been--

`(A) allocated by such individual,

`(B) treated as allocated under subsection (b) with respect to a direct skip occurring during or before the calendar year in which the indirect skip is made, or

`(C) treated as allocated under paragraph (1) with respect to a prior indirect skip.

`(3) DEFINITIONS-

`(A) INDIRECT SKIP- For purposes of this subsection, the term `indirect skip' means any transfer of property (other than a direct skip) subject to the tax imposed by chapter 12 made to a GST trust.

`(B) GST TRUST- The term `GST trust' means a trust that could have a generation-skipping transfer with respect to the transferor unless--

`(i) the trust instrument provides that more than 25 percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons--

`(I) before the date that the individual attains age 46,

`(II) on or before one or more dates specified in the trust instrument that will occur before the date that such individual attains age 46, or

`(III) upon the occurrence of an event that, in accordance with regulations prescribed by the Secretary, may reasonably be expected to occur before the date that such individual attains age 46;

`(ii) the trust instrument provides that more than 25 percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons and who are living on the date of death of another person identified in the instrument (by name or by class) who is more than 10 years older than such individuals;

`(iii) the trust instrument provides that, if one or more individuals who are non-skip persons die on or before a date or event described in clause (i) or (ii), more than 25 percent of the trust corpus either must be distributed to the estate or estates of one or more of such individuals or is subject to a general power of appointment exercisable by one or more of such individuals;

`(iv) the trust is a trust any portion of which would be included in the gross estate of a non-skip person (other than the transferor) if such person died immediately after the transfer;

`(v) the trust is a charitable lead annuity trust (within the meaning of section 2642(e)(3)(A)) or a charitable remainder annuity trust or a charitable remainder unitrust (within the meaning of section 664(d)); or

`(vi) the trust is a trust with respect to which a deduction was allowed under section 2522 for the amount of an interest in the form of the right to receive annual payments of a fixed percentage of the net fair market value of the trust property (determined yearly) and which is required to pay principal to a non-skip person if such person is alive when the yearly payments for which the deduction was allowed terminate.

For purposes of this subparagraph, the value of transferred property shall not be considered to be includible in the gross estate of a non-skip person or subject to a right of withdrawal by reason of such person holding a right to withdraw so much of such property as does not exceed the amount referred to in section 2503(b) with respect to any transferor, and it shall be assumed that powers of appointment held by non-skip persons will not be exercised.

`(4) AUTOMATIC ALLOCATIONS TO CERTAIN GST TRUSTS- For purposes of this subsection, an indirect skip to which section 2642(f) applies shall be deemed to have been made only at the close of the estate tax inclusion period. The fair market value of such transfer shall be the fair market value of the trust property at the close of the estate tax inclusion period.

`(5) APPLICABILITY AND EFFECT-

`(A) IN GENERAL- An individual--

`(i) may elect to have this subsection not apply to--

`(I) an indirect skip, or

`(II) any or all transfers made by such individual to a particular trust, and

`(ii) may elect to treat any trust as a GST trust for purposes of this subsection with respect to any or all transfers made by such individual to such trust.

`(B) ELECTIONS-

`(i) ELECTIONS WITH RESPECT TO INDIRECT SKIPS- An election under subparagraph (A)(i)(I) shall be deemed to be timely if filed on a timely filed gift tax return for the calendar year in which the transfer was made or deemed to have been made pursuant to paragraph (4) or on such later date or dates as may be prescribed by the Secretary.

`(ii) OTHER ELECTIONS- An election under clause (i)(II) or (ii) of subparagraph (A) may be made on a timely filed gift tax return for the calendar year for which the election is to become effective.

`(d) RETROACTIVE ALLOCATIONS-

`(1) IN GENERAL- If--

`(A) a non-skip person has an interest or a future interest in a trust to which any transfer has been made,

`(B) such person--

`(i) is a lineal descendant of a grandparent of the transferor or of a grandparent of the transferor's spouse or former spouse, and

`(ii) is assigned to a generation below the generation assignment of the transferor, and

`(C) such person predeceases the transferor,

then the transferor may make an allocation of any of such transferor's unused GST exemption to any previous transfer or transfers to the trust on a chronological basis.

`(2) SPECIAL RULES- If the allocation under paragraph (1) by the transferor is made on a gift tax return filed on or before the date prescribed by section 6075(b) for gifts made within the calendar year within which the non-skip person's death occurred--

`(A) the value of such transfer or transfers for purposes of section 2642(a) shall be determined as if such allocation had been made on a timely filed gift tax return for each calendar year within which each transfer was made,

`(B) such allocation shall be effective immediately before such death, and

`(C) the amount of the transferor's unused GST exemption available to be allocated shall be determined immediately before such death.

`(3) FUTURE INTEREST- For purposes of this subsection, a person has a future interest in a trust if the trust may permit income or corpus to be paid to such person on a date or dates in the future.'.

(b) CONFORMING AMENDMENT- Paragraph (2) of section 2632(b) is amended by striking `with respect to a direct skip' and inserting `or subsection (c)(1)'.

(c) EFFECTIVE DATES-

(1) DEEMED ALLOCATION- Section 2632(c) of the Internal Revenue Code of 1986 (as added by subsection (a)), and the amendment made by subsection (b), shall apply to transfers subject to chapter 11 or 12 made after December 31, 1999, and to estate tax inclusion periods ending after December 31, 1999.

(2) RETROACTIVE ALLOCATIONS- Section 2632(d) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to deaths of non-skip persons occurring after December 31, 1999.

SEC. 322. SEVERING OF TRUSTS.

(a) IN GENERAL- Subsection (a) of section 2642 (relating to inclusion ratio) is amended by adding at the end the following new paragraph:

`(3) SEVERING OF TRUSTS-

`(A) IN GENERAL- If a trust is severed in a qualified severance, the trusts resulting from such severance shall be treated as separate trusts thereafter for purposes of this chapter.

`(B) QUALIFIED SEVERANCE- For purposes of subparagraph (A)--

`(i) IN GENERAL- The term `qualified severance' means the division of a single trust and the creation (by any means available under the governing instrument or under local law) of two or more trusts if--

`(I) the single trust was divided on a fractional basis, and

`(II) the terms of the new trusts, in the aggregate, provide for the same succession of interests of beneficiaries as are provided in the original trust.

`(ii) TRUSTS WITH INCLUSION RATIO GREATER THAN ZERO- If a trust has an inclusion ratio of greater than zero and less than 1, a severance is a qualified severance only if the single trust is divided into two trusts, one of which receives a fractional share of the total value of all trust assets equal to the applicable fraction of the single trust immediately before the severance. In such case, the trust receiving such fractional share shall have an inclusion ratio of zero and the other trust shall have an inclusion ratio of 1.

`(iii) REGULATIONS- The term `qualified severance' includes any other severance permitted under regulations prescribed by the Secretary.

`(C) TIMING AND MANNER OF SEVERANCES- A severance pursuant to this paragraph may be made at any time. The Secretary shall prescribe by forms or regulations the manner in which the qualified severance shall be reported to the Secretary.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to severances after December 31, 1999.

SEC. 323. MODIFICATION OF CERTAIN VALUATION RULES.

(a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED ALLOCATION MADE- Paragraph (1) of section 2642(b) (relating to valuation rules, etc.) is amended to read as follows:

`(1) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED ALLOCATION MADE- If the allocation of the GST exemption to any transfers of property is made on a gift tax return filed on or before the date prescribed by section 6075(b) for such transfer or is deemed to be made under section 2632(b)(1) or (c)(1)--

`(A) the value of such property for purposes of subsection (a) shall be its value as finally determined for purposes of chapter 12 (within the meaning of section 2001(f)(2)), or, in the case of an allocation deemed to have been made at the close of an estate tax inclusion period, its value at the time of the close of the estate tax inclusion period, and

`(B) such allocation shall be effective on and after the date of such transfer, or, in the case of an allocation deemed to have been made at the close of an estate tax inclusion period, on and after the close of such estate tax inclusion period.'.

(b) TRANSFERS AT DEATH- Subparagraph (A) of section 2642(b)(2) is amended to read as follows:

`(A) TRANSFERS AT DEATH- If property is transferred as a result of the death of the transferor, the value of such property for purposes of subsection (a) shall be its value as finally determined for purposes of chapter 11; except that, if the requirements prescribed by the Secretary respecting allocation of post-death changes in value are not met, the value of such property shall be determined as of the time of the distribution concerned.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to transfers subject to chapter 11 or 12 of the Internal Revenue Code of 1986 made after December 31, 1999.

SEC. 324. RELIEF PROVISIONS.

(a) IN GENERAL- Section 2642 is amended by adding at the end the following new subsection:

`(g) RELIEF PROVISIONS-

`(1) RELIEF FOR LATE ELECTIONS-

`(A) IN GENERAL- The Secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make--

`(i) an allocation of GST exemption described in paragraph (1) or (2) of subsection (b), and

`(ii) an election under subsection (b)(3) or (c)(5) of section 2632.

Such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph.

`(B) BASIS FOR DETERMINATIONS- In determining whether to grant relief under this paragraph, the Secretary shall take into account all relevant circumstances, including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the Secretary deems relevant. For purposes of determining whether to grant relief under this paragraph, the time for making the allocation (or election) shall be treated as if not expressly prescribed by statute.

`(2) SUBSTANTIAL COMPLIANCE- An allocation of GST exemption under section 2632 that demonstrates an intent to have the lowest possible inclusion ratio with respect to a transfer or a trust shall be deemed to be an allocation of so much of the transferor's unused GST exemption as produces the lowest possible inclusion ratio. In determining whether there has been substantial compliance, all relevant circumstances shall be taken into account, including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the Secretary deems relevant.'.

(b) EFFECTIVE DATES-

(1) RELIEF FOR LATE ELECTIONS- Section 2642(g)(1) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to requests pending on, or filed after, December 31, 1999.

(2) SUBSTANTIAL COMPLIANCE- Section 2642(g)(2) of such Code (as so added) shall take effect on the date of the enactment of this Act and shall apply to transfers subject to chapter 11 or 12 of the Internal Revenue Code of 1986 made after December 31, 1999.

Subtitle D--Conservation Easements

SEC. 331. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.

(a) WHERE LAND IS LOCATED-

(1) IN GENERAL- Clause (i) of section 2031(c)(8)(A) (defining land subject to a conservation easement) is amended--

(A) by striking `25 miles' both places it appears and inserting `50 miles'; and

(B) striking `10 miles' and inserting `25 miles'.

(2) EFFECTIVE DATE- The amendments made by this subsection shall apply to estates of decedents dying after December 31, 1999.

(b) CLARIFICATION OF DATE FOR DETERMINING VALUE OF LAND AND EASEMENT-

(1) IN GENERAL- Section 2031(c)(2) (defining applicable percentage) is amended by adding at the end the following new sentence: `The values taken into account under the preceding sentence shall be such values as of the date of the contribution referred to in paragraph (8)(B).'.

(2) EFFECTIVE DATE- The amendment made by this subsection shall apply to estates of decedents dying after December 31, 1997.

TITLE IV--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

Subtitle A--American Community Renewal Act of 2000

SEC. 401. SHORT TITLE.

This subtitle may be cited as the `American Community Renewal Act of 2000'.

SEC. 402. DESIGNATION OF AND TAX INCENTIVES FOR RENEWAL COMMUNITIES.

(a) IN GENERAL- Chapter 1 is amended by adding at the end the following new subchapter:

`Subchapter X--Renewal Communities

`Part I. Designation.

`Part II. Renewal community capital gain; renewal community business.

`Part III. Family development accounts.

`Part IV. Additional incentives.

`PART I--DESIGNATION

`Sec. 1400E. Designation of renewal communities.

`SEC. 1400E. DESIGNATION OF RENEWAL COMMUNITIES.

`(a) Designation-

`(1) DEFINITIONS- For purposes of this title, the term `renewal community' means any area--

`(A) which is nominated by one or more local governments and the State or States in which it is located for designation as a renewal community (hereinafter in this section referred to as a `nominated area'); and

`(B) which the Secretary of Housing and Urban Development designates as a renewal community, after consultation with--

`(i) the Secretaries of Agriculture, Commerce, Labor, and the Treasury; the Director of the Office of Management and Budget; and the Administrator of the Small Business Administration; and

`(ii) in the case of an area on an Indian reservation, the Secretary of the Interior.

`(2) Number of designations-

`(A) IN GENERAL- The Secretary of Housing and Urban Development may designate not more than 15 nominated areas as renewal communities.

`(B) MINIMUM DESIGNATION IN RURAL AREAS- Of the areas designated under paragraph (1), at least three must be areas--

`(i) which are within a local government jurisdiction or jurisdictions with a population of less than 50,000,

`(ii) which are outside of a metropolitan statistical area (within the meaning of section 143(k)(2)(B)), or

`(iii) which are determined by the Secretary of Housing and Urban Development, after consultation with the Secretary of Commerce, to be rural areas.

`(3) AREAS DESIGNATED BASED ON DEGREE OF POVERTY, ETC-

`(A) IN GENERAL- Except as otherwise provided in this section, the nominated areas designated as renewal communities under this subsection shall be those nominated areas with the highest average ranking with respect to the criteria described in subparagraphs (B), (C), and (D) of subsection (c)(3). For purposes of the preceding sentence, an area shall be ranked within each such criterion on the basis of the amount by which the area exceeds such criterion, with the area which exceeds such criterion by the greatest amount given the highest ranking.

`(B) EXCEPTION WHERE INADEQUATE COURSE OF ACTION, ETC- An area shall not be designated under subparagraph (A) if the Secretary of Housing and Urban Development determines that the course of action described in subsection (d)(2) with respect to such area is inadequate.

`(C) PRIORITY FOR EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES WITH RESPECT TO FIRST 10 DESIGNATIONS- With respect to the first 10 designations made under this section--

`(i) all shall be chosen from nominated areas which are empowerment zones or enterprise communities (and are otherwise eligible for designation under this section); and

`(ii) two shall be areas described in paragraph (2)(B).

`(4) Limitation on designations-

`(A) PUBLICATION OF REGULATIONS- The Secretary of Housing and Urban Development shall prescribe by regulation no later than 4 months after the date of the enactment of this section, after consultation with the officials described in paragraph (1)(B)--

`(i) the procedures for nominating an area under paragraph (1)(A);

`(ii) the parameters relating to the size and population characteristics of a renewal community; and

`(iii) the manner in which nominated areas will be evaluated based on the criteria specified in subsection (d).

`(B) TIME LIMITATIONS- The Secretary of Housing and Urban Development may designate nominated areas as renewal communities only during the 36-month period beginning on the first day of the first month following the month in which the regulations described in subparagraph (A) are prescribed.

`(C) PROCEDURAL RULES- The Secretary of Housing and Urban Development shall not make any designation of a nominated area as a renewal community under paragraph (2) unless--

`(i) the local governments and the States in which the nominated area is located have the authority--

`(I) to nominate such area for designation as a renewal community;

`(II) to make the State and local commitments described in subsection (d); and

`(III) to provide assurances satisfactory to the Secretary of Housing and Urban Development that such commitments will be fulfilled,

`(ii) a nomination regarding such area is submitted in such a manner and in such form, and contains such information, as the Secretary of Housing and Urban Development shall by regulation prescribe; and

`(iii) the Secretary of Housing and Urban Development determines that any information furnished is reasonably accurate.

`(5) NOMINATION PROCESS FOR INDIAN RESERVATIONS- For purposes of this subchapter, in the case of a nominated area on an Indian reservation, the reservation governing body (as determined by the Secretary of the Interior) shall be treated as being both the State and local governments with respect to such area.

`(b) Period for Which Designation Is in Effect-

`(1) IN GENERAL- Any designation of an area as a renewal community shall remain in effect during the period beginning on the date of the designation and ending on the earliest of--

`(A) December 31, 2007,

`(B) the termination date designated by the State and local governments in their nomination, or

`(C) the date the Secretary of Housing and Urban Development revokes such designation.

`(2) REVOCATION OF DESIGNATION- The Secretary of Housing and Urban Development may revoke the designation under this section of an area if such Secretary determines that the local government or the State in which the area is located--

`(A) has modified the boundaries of the area, or

`(B) is not complying substantially with, or fails to make progress in achieving, the State or local commitments, respectively, described in subsection (d).

`(c) Area and Eligibility Requirements-

`(1) IN GENERAL- The Secretary of Housing and Urban Development may designate a nominated area as a renewal community under subsection (a) only if the area meets the requirements of paragraphs (2) and (3) of this subsection.

`(2) AREA REQUIREMENTS- A nominated area meets the requirements of this paragraph if--

`(A) the area is within the jurisdiction of one or more local governments;

`(B) the boundary of the area is continuous; and

`(C) the area--

`(i) has a population, of at least--

`(I) 4,000 if any portion of such area (other than a rural area described in subsection (a)(2)(B)(i)) is located within a metropolitan statistical area (within the meaning of section 143(k)(2)(B)) which has a population of 50,000 or greater; or

`(II) 1,000 in any other case; or

`(ii) is entirely within an Indian reservation (as determined by the Secretary of the Interior).

`(3) ELIGIBILITY REQUIREMENTS- A nominated area meets the requirements of this paragraph if the State and the local governments in which it is located certify (and the Secretary of Housing and Urban Development, after such review of supporting data as he deems appropriate, accepts such certification) that--

`(A) the area is one of pervasive poverty, unemployment, and general distress;

`(B) the unemployment rate in the area, as determined by the most recent available data, was at least 1 1/2 times the national unemployment rate for the period to which such data relate;

`(C) the poverty rate for each population census tract within the nominated area is at least 20 percent; and

`(D) in the case of an urban area, at least 70 percent of the households living in the area have incomes below 80 percent of the median income of households within the jurisdiction of the local government (determined in the same manner as under section 119(b)(2) of the Housing and Community Development Act of 1974).

`(4) CONSIDERATION OF HIGH INCIDENCE OF CRIME- The Secretary of Housing and Urban Development shall take into account, in selecting nominated areas for designation as renewal communities under this section, the extent to which such areas have a high incidence of crime.

`(5) CONSIDERATION OF COMMUNITIES IDENTIFIED IN GAO STUDY- The Secretary of Housing and Urban Development shall take into account, in selecting nominated areas for designation as renewal communities under this section, if the area has census tracts identified in the May 12, 1998, report of the Government Accounting Office regarding the identification of economically distressed areas.

`(d) Required State and Local Commitments-

`(1) IN GENERAL- The Secretary of Housing and Urban Development may designate any nominated area as a renewal community under subsection (a) only if--

`(A) the local government and the State in which the area is located agree in writing that, during any period during which the area is a renewal community, such governments will follow a specified course of action which meets the requirements of paragraph (2) and is designed to reduce the various burdens borne by employers or employees in such area; and

`(B) the economic growth promotion requirements of paragraph (3) are met.

`(2) COURSE OF ACTION-

`(A) IN GENERAL- A course of action meets the requirements of this paragraph if such course of action is a written document, signed by a State (or local government) and neighborhood organizations, which evidences a partnership between such State or government and community-based organizations and which commits each signatory to specific and measurable goals, actions, and timetables. Such course of action shall include at least five of the following:

`(i) A reduction of tax rates or fees applying within the renewal community.

`(ii) An increase in the level of efficiency of local services within the renewal community.

`(iii) Crime reduction strategies, such as crime prevention (including the provision of such services by nongovernmental entities).

`(iv) Actions to reduce, remove, simplify, or streamline governmental requirements applying within the renewal community.

`(v) Involvement in the program by private entities, organizations, neighborhood organizations, and community groups, particularly those in the renewal community, including a commitment from such private entities to provide jobs and job training for, and technical, financial, or other assistance to, employers, employees, and residents from the renewal community.

`(vi) State or local income tax benefits for fees paid for services performed by a nongovernmental entity which were formerly performed by a governmental entity.

`(vii) The gift (or sale at below fair market value) of surplus real property (such as land, homes, and commercial or industrial structures) in the renewal community to neighborhood organizations, community development corporations, or private companies.

`(B) RECOGNITION OF PAST EFFORTS- For purposes of this section, in evaluating the course of action agreed to by any State or local government, the Secretary of Housing and Urban Development shall take into account the past efforts of such State or local government in reducing the various burdens borne by employers and employees in the area involved.

`(3) ECONOMIC GROWTH PROMOTION REQUIREMENTS- The economic growth promotion requirements of this paragraph are met with respect to a nominated area if the local government and the State in which such area is located certify in writing that such government and State, respectively, have repealed or otherwise will not enforce within the area, if such area is designated as a renewal community--

`(A) licensing requirements for occupations that do not ordinarily require a professional degree;

`(B) zoning restrictions on home-based businesses which do not create a public nuisance;

`(C) permit requirements for street vendors who do not create a public nuisance;

`(D) zoning or other restrictions that impede the formation of schools or child care centers; and

`(E) franchises or other restrictions on competition for businesses providing public services, including but not limited to taxicabs, jitneys, cable television, or trash hauling,

except to the extent that such regulation of businesses and occupations is necessary for and well-tailored to the protection of health and safety.

`(e) COORDINATION WITH TREATMENT OF EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES- For purposes of this title, if there are in effect with respect to the same area both--

`(1) a designation as a renewal community; and

`(2) a designation as an empowerment zone or enterprise community,

both of such designations shall be given full effect with respect to such area.

`(f) DEFINITIONS AND SPECIAL RULES- For purposes of this subchapter--

`(1) GOVERNMENTS- If more than one government seeks to nominate an area as a renewal community, any reference to, or requirement of, this section shall apply to all such governments.

`(2) STATE- The term `State' includes Puerto Rico, the Virgin Islands of the United States, Guam, American Samoa, the Northern Mariana Islands, and any other possession of the United States.

`(3) LOCAL GOVERNMENT- The term `local government' means--

`(A) any county, city, town, township, parish, village, or other general purpose political subdivision of a State;

`(B) any combination of political subdivisions described in subparagraph (A) recognized by the Secretary of Housing and Urban Development; and

`(C) the District of Columbia.

`(4) APPLICATION OF RULES RELATING TO CENSUS TRACTS AND CENSUS DATA- The rules of sections 1392(b)(4) and 1393(a)(9) shall apply.

`PART II--RENEWAL COMMUNITY CAPITAL GAIN; RENEWAL COMMUNITY BUSINESS

`Sec. 1400F. Renewal community capital gain.

`Sec. 1400G. Renewal community business defined.

`SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.

`(a) GENERAL RULE- Gross income does not include any qualified capital gain recognized on the sale or exchange of a qualified community asset held for more than 5 years.

`(b) QUALIFIED COMMUNITY ASSET- For purposes of this section--

`(1) IN GENERAL- The term `qualified community asset' means--

`(A) any qualified community stock;

`(B) any qualified community partnership interest; and

`(C) any qualified community business property.

`(2) QUALIFIED COMMUNITY STOCK-

`(A) IN GENERAL- Except as provided in subparagraph (B), the term `qualified community stock' means any stock in a domestic corporation if--

`(i) such stock is acquired by the taxpayer after December 31, 2000, and before January 1, 2008, at its original issue (directly or through an underwriter) from the corporation solely in exchange for cash;

`(ii) as of the time such stock was issued, such corporation was a renewal community business (or, in the case of a new corporation, such corporation was being organized for purposes of being a renewal community business); and

`(iii) during substantially all of the taxpayer's holding period for such stock, such corporation qualified as a renewal community business.

`(B) REDEMPTIONS- A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph.

`(3) QUALIFIED COMMUNITY PARTNERSHIP INTEREST- The term `qualified community partnership interest' means any capital or profits interest in a domestic partnership if--

`(A) such interest is acquired by the taxpayer after December 31, 2000, and before January 1, 2008;

`(B) as of the time such interest was acquired, such partnership was a renewal community business (or, in the case of a new partnership, such partnership was being organized for purposes of being a renewal community business); and

`(C) during substantially all of the taxpayer's holding period for such interest, such partnership qualified as a renewal community business.

A rule similar to the rule of paragraph (2)(B) shall apply for purposes of this paragraph.

`(4) QUALIFIED COMMUNITY BUSINESS PROPERTY-

`(A) IN GENERAL- The term `qualified community business property' means tangible property if--

`(i) such property was acquired by the taxpayer by purchase (as defined in section 179(d)(2)) after December 31, 2000, and before January 1, 2008;

`(ii) the original use of such property in the renewal community commences with the taxpayer; and

`(iii) during substantially all of the taxpayer's holding period for such property, substantially all of the use of such property was in a renewal community business of the taxpayer.

`(B) SPECIAL RULE FOR SUBSTANTIAL IMPROVEMENTS- The requirements of clauses (i) and (ii) of subparagraph (A) shall be treated as satisfied with respect to--

`(i) property which is substantially improved (within the meaning of section 1400B(b)(4)(B)(ii)) by the taxpayer before January 1, 2008; and

`(ii) any land on which such property is located.

`(c) CERTAIN RULES TO APPLY- Rules similar to the rules of paragraphs (5), (6), and (7) of subsection (b), and subsections (e), (f), and (g), of section 1400B shall apply for purposes of this section.

`SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.

`For purposes of this part, the term `renewal community business' means any entity or proprietorship which would be a qualified business entity or qualified proprietorship under section 1397B if--

`(1) references to renewal communities were substituted for references to empowerment zones in such section; and

`(2) `80 percent' were substituted for `50 percent' in subsections (b)(2) and (c)(1) of such section.

`PART III--FAMILY DEVELOPMENT ACCOUNTS

`Sec. 1400H. Family development accounts for renewal community EITC recipients.

`Sec. 1400I. Designation of earned income tax credit payments for deposit to family development account.

`SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RENEWAL COMMUNITY EITC RECIPIENTS.

`(a) ALLOWANCE OF DEDUCTION-

`(1) IN GENERAL- There shall be allowed as a deduction--

`(A) in the case of a qualified individual, the amount paid in cash for the taxable year by such individual to any family development account for such individual's benefit; and

`(B) in the case of any person other than a qualified individual, the amount paid in cash for the taxable year by such person to any family development account for the benefit of a qualified individual but only if the amount so paid is designated for purposes of this section by such individual.

`(2) LIMITATION-

`(A) IN GENERAL- The amount allowable as a deduction to any individual for any taxable year by reason of paragraph (1)(A) shall not exceed the lesser of--

`(i) $2,000, or

`(ii) an amount equal to the compensation includible in the individual's gross income for such taxable year.

`(B) PERSONS DONATING TO FAMILY DEVELOPMENT ACCOUNTS OF OTHERS- The amount which may be designated under paragraph (1)(B) by any qualified individual for any taxable year of such individual shall not exceed $1,000.

`(3) SPECIAL RULES FOR CERTAIN MARRIED INDIVIDUALS- Rules similar to rules of section 219(c) shall apply to the limitation in paragraph (2)(A).

`(4) COORDINATION WITH IRAS- No deduction shall be allowed under this section for any taxable year to any person by reason of a payment to an account for the benefit of a qualified individual if any amount is paid for such taxable year into an individual retirement account (including a Roth IRA) for the benefit of such individual.

`(5) ROLLOVERS- No deduction shall be allowed under this section with respect to any rollover contribution.

`(b) TAX TREATMENT OF DISTRIBUTIONS-

`(1) INCLUSION OF AMOUNTS IN GROSS INCOME- Except as otherwise provided in this subsection, any amount paid or distributed out of a family development account shall be included in gross income by the payee or distributee, as the case may be.

`(2) EXCLUSION OF QUALIFIED FAMILY DEVELOPMENT DISTRIBUTIONS- Paragraph (1) shall not apply to any qualified family development distribution.

`(c) QUALIFIED FAMILY DEVELOPMENT DISTRIBUTION- For purposes of this section--

`(1) IN GENERAL- The term `qualified family development distribution' means any amount paid or distributed out of a family development account which would otherwise be includible in gross income, to the extent that such payment or distribution is used exclusively to pay qualified family development expenses for the holder of the account or the spouse or dependent (as defined in section 152) of such holder.

`(2) QUALIFIED FAMILY DEVELOPMENT EXPENSES- The term `qualified family development expenses' means any of the following:

`(A) Qualified higher education expenses.

`(B) Qualified first-time homebuyer costs.

`(C) Qualified business capitalization costs.

`(D) Qualified medical expenses.

`(E) Qualified rollovers.

`(3) QUALIFIED HIGHER EDUCATION EXPENSES-

`(A) IN GENERAL- The term `qualified higher education expenses' has the meaning given such term by section 72(t)(7), determined by treating postsecondary vocational educational schools as eligible educational institutions.

`(B) POSTSECONDARY VOCATIONAL EDUCATION SCHOOL- The term `postsecondary vocational educational school' means an area vocational education school (as defined in subparagraph (C) or (D) of section 521(4) of the Carl D. Perkins Vocational and Applied Technology Education Act (20 U.S.C. 2471(4))) which is in any State (as defined in section 521(33) of such Act), as such sections are in effect on the date of the enactment of this section.

`(C) COORDINATION WITH OTHER BENEFITS- The amount of qualified higher education expenses for any taxable year shall be reduced as provided in section 25A(g)(2).

`(4) QUALIFIED FIRST-TIME HOMEBUYER COSTS- The term `qualified first-time homebuyer costs' means qualified acquisition costs (as defined in section 72(t)(8) without regard to subparagraph (B) thereof) with respect to a principal residence (within the meaning of section 121) for a qualified first-time homebuyer (as defined in section 72(t)(8)).

`(5) QUALIFIED BUSINESS CAPITALIZATION COSTS-

`(A) IN GENERAL- The term `qualified business capitalization costs' means qualified expenditures for the capitalization of a qualified business pursuant to a qualified plan.

`(B) QUALIFIED EXPENDITURES- The term `qualified expenditures' means expenditures included in a qualified plan, including capital, plant, equipment, working capital, and inventory expenses.

`(C) QUALIFIED BUSINESS- The term `qualified business' means any trade or business other than any trade or business--

`(i) which consists of the operation of any facility described in section 144(c)(6)(B), or

`(ii) which contravenes any law.

`(D) QUALIFIED PLAN- The term `qualified plan' means a business plan which meets such requirements as the Secretary may specify.

`(6) QUALIFIED MEDICAL EXPENSES- The term `qualified medical expenses' means any amount paid during the taxable year, not compensated for by insurance or otherwise, for medical care (as defined in section 213(d)) of the taxpayer, his spouse, or his dependent (as defined in section 152).

`(7) QUALIFIED ROLLOVERS- The term `qualified rollover' means any amount paid from a family development account of a taxpayer into another such account established for the benefit of--

`(A) such taxpayer, or

`(B) any qualified individual who is--

`(i) the spouse of such taxpayer, or

`(ii) any dependent (as defined in section 152) of the taxpayer.

Rules similar to the rules of section 408(d)(3) shall apply for purposes of this paragraph.

`(d) TAX TREATMENT OF ACCOUNTS-

`(1) IN GENERAL- Any family development account is exempt from taxation under this subtitle unless such account has ceased to be a family development account by reason of paragraph (2). Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc., organizations). Notwithstanding any other provision of this title (including chapters 11 and 12), the basis of any person in such an account is zero.

`(2) LOSS OF EXEMPTION IN CASE OF PROHIBITED TRANSACTIONS- For purposes of this section, rules similar to the rules of section 408(e) shall apply.

`(3) OTHER RULES TO APPLY- Rules similar to the rules of paragraphs (4), (5), and (6) of section 408(d) shall apply for purposes of this section.

`(e) FAMILY DEVELOPMENT ACCOUNT- For purposes of this title, the term `family development account' means a trust created or organized in the United States for the exclusive benefit of a qualified individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements:

`(1) Except in the case of a qualified rollover (as defined in subsection (c)(7))--

`(A) no contribution will be accepted unless it is in cash; and

`(B) contributions will not be accepted for the taxable year in excess of $3,000.

`(2) The requirements of paragraphs (2) through (6) of section 408(a) are met.

`(f) QUALIFIED INDIVIDUAL- For purposes of this section, the term `qualified individual' means, for any taxable year, an individual--

`(1) who is a bona fide resident of a renewal community throughout the taxable year; and

`(2) to whom a credit was allowed under section 32 for the preceding taxable year.

`(g) OTHER DEFINITIONS AND SPECIAL RULES-

`(1) COMPENSATION- The term `compensation' has the meaning given such term by section 219(f)(1).

`(2) MARRIED INDIVIDUALS- The maximum deduction under subsection (a) shall be computed separately for each individual, and this section shall be applied without regard to any community property laws.

`(3) TIME WHEN CONTRIBUTIONS DEEMED MADE- For purposes of this section, a taxpayer shall be deemed to have made a contribution to a family development account on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).

`(4) EMPLOYER PAYMENTS; CUSTODIAL ACCOUNTS- Rules similar to the rules of sections 219(f)(5) and 408(h) shall apply for purposes of this section.

`(5) REPORTS- The trustee of a family development account shall make such reports regarding such account to the Secretary and to the individual for whom the account is maintained with respect to contributions (and the years to which they relate), distributions, and such other matters as the Secretary may require under regulations. The reports required by this paragraph--

`(A) shall be filed at such time and in such manner as the Secretary prescribes in such regulations; and

`(B) shall be furnished to individuals--

`(i) not later than January 31 of the calendar year following the calendar year to which such reports relate; and

`(ii) in such manner as the Secretary prescribes in such regulations.

`(6) INVESTMENT IN COLLECTIBLES TREATED AS DISTRIBUTIONS- Rules similar to the rules of section 408(m) shall apply for purposes of this section.

`(h) PENALTY FOR DISTRIBUTIONS NOT USED FOR QUALIFIED FAMILY DEVELOPMENT EXPENSES-

`(1) IN GENERAL- If any amount is distributed from a family development account and is not used exclusively to pay qualified family development expenses for the holder of the account or the spouse or dependent (as defined in section 152) of such holder, the tax imposed by this chapter for the taxable year of such distribution shall be increased by 10 percent of the portion of such amount which is includible in gross income.

`(2) EXCEPTION FOR CERTAIN DISTRIBUTIONS- Paragraph (1) shall not apply to distributions which are--

`(A) made on or after the date on which the account holder attains age 59 1/2 ,

`(B) made to a beneficiary (or the estate of the account holder) on or after the death of the account holder, or

`(C) attributable to the account holder's being disabled within the meaning of section 72(m)(7).

`(i) APPLICATION OF SECTION- This section shall apply to amounts paid to a family development account for any taxable year beginning after December 31, 2000, and before January 1, 2008.

`SEC. 1400I. DESIGNATION OF EARNED INCOME TAX CREDIT PAYMENTS FOR DEPOSIT TO FAMILY DEVELOPMENT ACCOUNT.

`(a) IN GENERAL- With respect to the return of any qualified individual (as defined in section 1400H(f)) for the taxable year of the tax imposed by this chapter, such individual may designate that a specified portion (not less than $1) of any overpayment of tax for such taxable year which is attributable to the earned income tax credit shall be deposited by the Secretary into a family development account of such individual. The Secretary shall so deposit such portion designated under this subsection.

`(b) MANNER AND TIME OF DESIGNATION- A designation under subsection (a) may be made with respect to any taxable year--

`(1) at the time of filing the return of the tax imposed by this chapter for such taxable year, or

`(2) at any other time (after the time of filing the return of the tax imposed by this chapter for such taxable year) specified in regulations prescribed by the Secretary.

Such designation shall be made in such manner as the Secretary prescribes by regulations.

`(c) PORTION ATTRIBUTABLE TO EARNED INCOME TAX CREDIT- For purposes of subsection (a), an overpayment for any taxable year shall be treated as attributable to the earned income tax credit to the extent that such overpayment does not exceed the credit allowed to the taxpayer under section 32 for such taxable year.

`(d) OVERPAYMENTS TREATED AS REFUNDED- For purposes of this title, any portion of an overpayment of tax designated under subsection (a) shall be treated as being refunded to the taxpayer as of the last date prescribed for filing the return of tax imposed by this chapter (determined without regard to extensions) or, if later, the date the return is filed.

`(e) TERMINATION- This section shall not apply to any taxable year beginning after December 31, 2007.

`PART IV--ADDITIONAL INCENTIVES

`Sec. 1400K. Commercial revitalization deduction.

`Sec. 1400L. Increase in expensing under section 179.

`SEC. 1400K. COMMERCIAL REVITALIZATION DEDUCTION.

`(a) GENERAL RULE- At the election of the taxpayer, either--

`(1) one-half of any qualified revitalization expenditures chargeable to capital account with respect to any qualified revitalization building shall be allowable as a deduction for the taxable year in which the building is placed in service, or

`(2) a deduction for all such expenditures shall be allowable ratably over the 120-month period beginning with the month in which the building is placed in service.

The deduction provided by this section with respect to such expenditure shall be in lieu of any depreciation deduction otherwise allowable on account of such expenditure.

`(b) QUALIFIED REVITALIZATION BUILDINGS AND EXPENDITURES- For purposes of this section--

`(1) QUALIFIED REVITALIZATION BUILDING- The term `qualified revitalization building' means any building (and its structural components) if--

`(A) such building is located in a renewal community and is placed in service after December 31, 2000;

`(B) a commercial revitalization deduction amount is allocated to the building under subsection (d); and

`(C) depreciation (or amortization in lieu of depreciation) is allowable with respect to the building (without regard to this section).

`(2) QUALIFIED REVITALIZATION EXPENDITURE-

`(A) IN GENERAL- The term `qualified revitalization expenditure' means any amount properly chargeable to capital account--

`(i) for property for which depreciation is allowable under section 168 (without regard to this section) and which is--

`(I) nonresidential real property; or

`(II) an addition or improvement to property described in subclause (I);

`(ii) in connection with the construction of any qualified revitalization building which was not previously placed in service or in connection with the substantial rehabilitation (within the meaning of section 47(c)(1)(C)) of a building which was placed in service before the beginning of such rehabilitation; and

`(iii) for land (including land which is functionally related to such property and subordinate thereto).

`(B) DOLLAR LIMITATION- The aggregate amount which may be treated as qualified revitalization expenditures with respect to any qualified revitalization building for any taxable year shall not exceed the excess of--

`(i) $10,000,000, reduced by

`(ii) any such expenditures with respect to the building taken into account by the taxpayer or any predecessor in determining the amount of the deduction under this section for all preceding taxable years.

`(C) CERTAIN EXPENDITURES NOT INCLUDED- The term `qualified revitalization expenditure' does not include--

`(i) ACQUISITION COSTS- The costs of acquiring any building or interest therein and any land in connection with such building to the extent that such costs exceed 30 percent of the qualified revitalization expenditures determined without regard to this clause.

`(ii) CREDITS- Any expenditure which the taxpayer may take into account in computing any credit allowable under this title unless the taxpayer elects to take the expenditure into account only for purposes of this section.

`(c) WHEN EXPENDITURES TAKEN INTO ACCOUNT- Qualified revitalization expenditures with respect to any qualified revitalization building shall be taken into account for the taxable year in which the qualified revitalization building is placed in service. For purposes of the preceding sentence, a substantial rehabilitation of a building shall be treated as a separate building.

`(d) LIMITATION ON AGGREGATE DEDUCTIONS ALLOWABLE WITH RESPECT TO BUILDINGS LOCATED IN A STATE-

`(1) IN GENERAL- The amount of the deduction determined under this section for any taxable year with respect to any building shall not exceed the commercial revitalization deduction amount (in the case of an amount determined under subsection (a)(2), the present value of such amount as determined under the rules of section 42(b)(2)(C) by substituting `100 percent' for `72 percent' in clause (ii) thereof) allocated to such building under this subsection by the commercial revitalization agency. Such allocation shall be made at the same time and in the same manner as under paragraphs (1) and (7) of section 42(h).

`(2) COMMERCIAL REVITALIZATION DEDUCTION AMOUNT FOR AGENCIES-

`(A) IN GENERAL- The aggregate commercial revitalization deduction amount which a commercial revitalization agency may allocate for any calendar year is the amount of the State commercial revitalization deduction ceiling determined under this paragraph for such calendar year for such agency.

`(B) STATE COMMERCIAL REVITALIZATION DEDUCTION CEILING- The State commercial revitalization deduction ceiling applicable to any State--

`(i) for each calendar year after 2000 and before 2008 is $6,000,000 for each renewal community in the State; and

`(ii) zero for each calendar year thereafter.

`(C) COMMERCIAL REVITALIZATION AGENCY- For purposes of this section, the term `commercial revitalization agency' means any agency authorized by a State to carry out this section.

`(e) RESPONSIBILITIES OF COMMERCIAL REVITALIZATION AGENCIES-

`(1) PLANS FOR ALLOCATION- Notwithstanding any other provision of this section, the commercial revitalization deduction amount with respect to any building shall be zero unless--

`(A) such amount was allocated pursuant to a qualified allocation plan of the commercial revitalization agency which is approved (in accordance with rules similar to the rules of section 147(f)(2) (other than subparagraph (B)(ii) thereof)) by the governmental unit of which such agency is a part; and

`(B) such agency notifies the chief executive officer (or its equivalent) of the local jurisdiction within which the building is located of such allocation and provides such individual a reasonable opportunity to comment on the allocation.

`(2) QUALIFIED ALLOCATION PLAN- For purposes of this subsection, the term `qualified allocation plan' means any plan--

`(A) which sets forth selection criteria to be used to determine priorities of the commercial revitalization agency which are appropriate to local conditions;

`(B) which considers--

`(i) the degree to which a project contributes to the implementation of a strategic plan that is devised for a renewal community through a citizen participation process;

`(ii) the amount of any increase in permanent, full-time employment by reason of any project; and

`(iii) the active involvement of residents and nonprofit groups within the renewal community; and

`(C) which provides a procedure that the agency (or its agent) will follow in monitoring compliance with this section.

`(f) REGULATIONS- For purposes of this section, the Secretary shall, by regulations, provide for the application of rules similar to the rules of section 49 and subsections (a) and (b) of section 50.

`(g) TERMINATION- This section shall not apply to any building placed in service after December 31, 2007.

`SEC. 1400L. INCREASE IN EXPENSING UNDER SECTION 179.

`(a) GENERAL RULE- In the case of a renewal community business (as defined in section 1400G), for purposes of section 179--

`(1) the limitation under section 179(b)(1) shall be increased by the lesser of--

`(A) $35,000; or

`(B) the cost of section 179 property which is qualified renewal property placed in service during the taxable year; and

`(2) the amount taken into account under section 179(b)(2) with respect to any section 179 property which is qualified renewal property shall be 50 percent of the cost thereof.

`(b) RECAPTURE- Rules similar to the rules under section 179(d)(10) shall apply with respect to any qualified renewal property which ceases to be used in a renewal community by a renewal community business.

`(c) QUALIFIED RENEWAL PROPERTY- For purposes of this section--

`(1) IN GENERAL- The term `qualified renewal property' means any property to which section 168 applies (or would apply but for section 179) if--

`(A) such property was acquired by the taxpayer by purchase (as defined in section 179(d)(2)) after December 31, 2000, and before January 1, 2008; and

`(B) such property would be qualified zone property (as defined in section 1397C) if references to renewal communities were substituted for references to empowerment zones in section 1397C.

`(2) CERTAIN RULES TO APPLY- The rules of subsections (a)(2) and (b) of section 1397C shall apply for purposes of this section.'.

SEC. 403. EXTENSION OF EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS TO RENEWAL COMMUNITIES.

(a) EXTENSION- Paragraph (2) of section 198(c) (defining targeted area) is amended by redesignating subparagraph (C) as subparagraph (D) and by inserting after subparagraph (B) the following new subparagraph:

`(C) RENEWAL COMMUNITIES INCLUDED- Except as provided in subparagraph (B), such term shall include a renewal community (as defined in section 1400E) with respect to expenditures paid or incurred after December 31, 2000.'.

(b) EXTENSION OF TERMINATION DATE FOR RENEWAL COMMUNITIES- Subsection (h) of section 198 is amended by inserting before the period `(December 31, 2007, in the case of a renewal community, as defined in section 1400E).'.

SEC. 404. EXTENSION OF WORK OPPORTUNITY TAX CREDIT FOR RENEWAL COMMUNITIES.

(a) EXTENSION- Subsection (c) of section 51 (relating to termination) is amended by adding at the end the following new paragraph:

`(5) EXTENSION OF CREDIT FOR RENEWAL COMMUNITIES-

`(A) IN GENERAL- In the case of an individual who begins work for the employer after the date contained in paragraph (4)(B), for purposes of section 38--

`(i) in lieu of applying subsection (a), the amount of the work opportunity credit determined under this section for the taxable year shall be equal to--

`(I) 15 percent of the qualified first-year wages for such year; and

`(II) 30 percent of the qualified second-year wages for such year;

`(ii) subsection (b)(3) shall be applied by substituting `$10,000' for `$6,000';

`(iii) paragraph (4)(B) shall be applied by substituting for the date contained therein the last day for which the designation under section 1400E of the renewal community referred to in subparagraph (B)(i) is in effect; and

`(iv) rules similar to the rules of section 51A(b)(5)(C) shall apply.

`(B) QUALIFIED FIRST- AND SECOND-YEAR WAGES- For purposes of subparagraph (A)--

`(i) IN GENERAL- The term `qualified wages' means, with respect to each 1-year period referred to in clause (ii) or (iii), as the case may be, the wages paid or incurred by the employer during the taxable year to any individual but only if--

`(I) the employer is engaged in a trade or business in a renewal community throughout such 1-year period;

`(II) the principal place of abode of such individual is in such renewal community throughout such 1-year period; and

`(III) substantially all of the services which such individual performs for the employer during such 1-year period are performed in such renewal community.

`(ii) QUALIFIED FIRST-YEAR WAGES- The term `qualified first-year wages' means, with respect to any individual, qualified wages attributable to service rendered during the 1-year period beginning with the day the individual begins work for the employer.

`(iii) QUALIFIED SECOND-YEAR WAGES- The term `qualified second-year wages' means, with respect to any individual, qualified wages attributable to service rendered during the 1-year period beginning on the day after the last day of the 1-year period with respect to such individual determined under clause (ii).'.

(b) CONGRUENT TREATMENT OF RENEWAL COMMUNITIES AND ENTERPRISE ZONES FOR PURPOSES OF YOUTH RESIDENCE REQUIREMENTS-

(1) HIGH-RISK YOUTH- Subparagraphs (A)(ii) and (B) of section 51(d)(5) are each amended by striking `empowerment zone or enterprise community' and inserting `empowerment zone, enterprise community, or renewal community'.

(2) QUALIFIED SUMMER YOUTH EMPLOYEE- Clause (iv) of section 51(d)(7)(A) is amended by striking `empowerment zone or enterprise community' and inserting `empowerment zone, enterprise community, or renewal community'.

(3) HEADINGS- Paragraphs (5)(B) and (7)(C) of section 51(d) are each amended by inserting `OR COMMUNITY' in the heading after `ZONE'.

(4) EFFECTIVE DATE- The amendments made by this subsection shall apply to individuals who begin work for the employer after December 31, 2000.

SEC. 405. CONFORMING AND CLERICAL AMENDMENTS.

(a) DEDUCTION FOR CONTRIBUTIONS TO FAMILY DEVELOPMENT ACCOUNTS ALLOWABLE WHETHER OR NOT TAXPAYER ITEMIZES- Subsection (a) of section 62 (relating to adjusted gross income defined) is amended by inserting after paragraph (19) the following new paragraph:

`(20) FAMILY DEVELOPMENT ACCOUNTS- The deduction allowed by section 1400H(a)(1).'.

(b) TAX ON EXCESS CONTRIBUTIONS-

(1) TAX IMPOSED- Subsection (a) of section 4973 is amended by striking `or' at the end of paragraph (3), adding `or' at the end of paragraph (4), and inserting after paragraph (4) the following new paragraph:

`(5) a family development account (within the meaning of section 1400H(e)),'.

(2) EXCESS CONTRIBUTIONS- Section 4973 is amended by adding at the end the following new subsection:

`(g) FAMILY DEVELOPMENT ACCOUNTS- For purposes of this section, in the case of family development accounts, the term `excess contributions' means the sum of--

`(1) the excess (if any) of--

`(A) the amount contributed for the taxable year to the accounts (other than a qualified rollover, as defined in section 1400H(c)(7)), over

`(B) the amount allowable as a deduction under section 1400H for such contributions; and

`(2) the amount determined under this subsection for the preceding taxable year reduced by the sum of--

`(A) the distributions out of the accounts for the taxable year which were included in the gross income of the payee under section 1400H(b)(1);

`(B) the distributions out of the accounts for the taxable year to which rules similar to the rules of section 408(d)(5) apply by reason of section 1400H(d)(3); and

`(C) the excess (if any) of the maximum amount allowable as a deduction under section 1400H for the taxable year over the amount contributed to the account for the taxable year.

For purposes of this subsection, any contribution which is distributed from the family development account in a distribution to which rules similar to the rules of section 408(d)(4) apply by reason of section 1400H(d)(3) shall be treated as an amount not contributed.'.

(c) TAX ON PROHIBITED TRANSACTIONS- Section 4975 is amended--

(1) by adding at the end of subsection (c) the following new paragraph:

`(6) SPECIAL RULE FOR FAMILY DEVELOPMENT ACCOUNTS- An individual for whose benefit a family development account is established and any contributor to such account shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if, with respect to such transaction, the account ceases to be a family development account by reason of the application of section 1400H(d)(2) to such account.'; and

(2) in subsection (e)(1), by striking `or' at the end of subparagraph (E), by redesignating subparagraph (F) as subparagraph (G), and by inserting after subparagraph (E) the following new subparagraph:

`(F) a family development account described in section 1400H(e), or'.

(d) INFORMATION RELATING TO CERTAIN TRUSTS AND ANNUITY PLANS- Subsection (c) of section 6047 is amended--

(1) by inserting `or section 1400H' after `section 219'; and

(2) by inserting `, of any family development account described in section 1400H(e),', after `section 408(a)'.

(e) INSPECTION OF APPLICATIONS FOR TAX EXEMPTION- Clause (i) of section 6104(a)(1)(B) is amended by inserting `a family development account described in section 1400H(e),' after `section 408(a),'.

(f) FAILURE TO PROVIDE REPORTS ON FAMILY DEVELOPMENT ACCOUNTS- Paragraph (2) of section 6693(a) is amended by striking `and' at the end of subparagraph (C), by striking the period and inserting `, and' at the end of subparagraph (D), and by adding at the end the following new subparagraph:

`(E) section 1400H(g)(6) (relating to family development accounts).'.

(g) CONFORMING AMENDMENTS REGARDING COMMERCIAL REVITALIZATION DEDUCTION-

(1) Section 172 is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection:

`(j) NO CARRYBACK OF SECTION 1400K DEDUCTION BEFORE DATE OF THE ENACTMENT- No portion of the net operating loss for any taxable year which is attributable to any commercial revitalization deduction determined under section 1400K may be carried back to a taxable year ending before the date of the enactment of section 1400K.'.

(2) Subparagraph (B) of section 48(a)(2) is amended by inserting `or commercial revitalization' after `rehabilitation' each place it appears in the text and heading.

(3) Subparagraph (C) of section 469(i)(3) is amended--

(A) by inserting `or section 1400K' after `section 42'; and

(B) by inserting `AND COMMERCIAL REVITALIZATION DEDUCTION' after `CREDIT' in the heading.

(h) CLERICAL AMENDMENTS- The table of subchapters for chapter 1 is amended by adding at the end the following new item:

`Subchapter X. Renewal Communities.'.

Subtitle B--Timber Incentives

SEC. 411. TEMPORARY SUSPENSION OF MAXIMUM AMOUNT OF AMORTIZABLE REFORESTATION EXPENDITURES.

(a) INCREASE IN DOLLAR LIMITATION- Paragraph (1) of section 194(b) (relating to amortization of reforestation expenditures) is amended by striking `$10,000 ($5,000' and inserting `$25,000 ($12,500'.

(b) TEMPORARY SUSPENSION OF INCREASED DOLLAR LIMITATION- Subsection (b) of section 194(b) (relating to amortization of reforestation expenditures) is amended by adding at the end the following new paragraph:

`(5) SUSPENSION OF DOLLAR LIMITATION- Paragraph (1) shall not apply to taxable years beginning after December 31, 2000, and before January 1, 2004.

(c) CONFORMING AMENDMENT- Paragraph (1) of section 48(b) is amended by striking `section 194(b)(1)' and inserting `section 194(b)(1) and without regard to section 194(b)(5)'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

TITLE V--REAL ESTATE PROVISIONS

Subtitle A--Improvements in Low-Income Housing Credit

SEC. 501. MODIFICATION OF STATE CEILING ON LOW-INCOME HOUSING CREDIT.

(a) IN GENERAL- Clauses (i) and (ii) of section 42(h)(3)(C) (relating to State housing credit ceiling) are amended to read as follows:

`(i) the unused State housing credit ceiling (if any) of such State for the preceding calendar year,

`(ii) the greater of--

`(I) the applicable amount under subparagraph (H) multiplied by the State population, or

`(II) $2,000,000,'.

(b) APPLICABLE AMOUNT- Paragraph (3) of section 42(h) (relating to housing credit dollar amount for agencies) is amended by adding at the end the following new subparagraph:

`(H) APPLICABLE AMOUNT OF STATE CEILING- For purposes of subparagraph (C)(ii), the applicable amount shall be determined under the following table:

`For calendar year:

--The applicable amount is:

2001

--$1.35

2002

-- 1.45

2003

-- 1.55

2004 and thereafter

-- 1.65.'.

(c) ADJUSTMENT OF STATE CEILING FOR INCREASES IN COST-OF-LIVING- Paragraph (3) of section 42(h) (relating to housing credit dollar amount for agencies), as amended by subsection (c), is amended by adding at the end the following new subparagraph:

`(I) COST-OF-LIVING ADJUSTMENT-

`(i) IN GENERAL- In the case of a calendar year after 2004, the $2,000,000 in subparagraph (C) and the $1.65 amount in subparagraph (H) shall each be increased by an amount equal to--

`(I) such dollar amount, multiplied by

`(II) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting `calendar year 2003' for `calendar year 1992' in subparagraph (B) thereof.

`(ii) ROUNDING-

`(I) In the case of the amount in subparagraph (C), any increase under clause (i) which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.

`(II) In the case of the amount in subparagraph (H), any increase under clause (i) which is not a multiple of 5 cents shall be rounded to the next lowest multiple of 5 cents.'.

(d) CONFORMING AMENDMENTS-

(1) Section 42(h)(3)(C), as amended by subsection (a), is amended--

(A) by striking `clause (ii)' in the matter following clause (iv) and inserting `clause (i)'; and

(B) by striking `clauses (i)' in the matter following clause (iv) and inserting `clauses (ii)'.

(2) Section 42(h)(3)(D)(ii) is amended--

(A) by striking `subparagraph (C)(ii)' and inserting `subparagraph (C)(i)'; and

(B) by striking `clauses (i)' in subclause (II) and inserting `clauses (ii)'.

(e) EFFECTIVE DATE- The amendments made by this section shall apply to calendar years after 2000.

SEC. 502. MODIFICATION OF CRITERIA FOR ALLOCATING HOUSING CREDITS AMONG PROJECTS.

(a) SELECTION CRITERIA- Subparagraph (C) of section 42(m)(1) (relating to certain selection criteria must be used) is amended--

(1) by inserting `, including whether the project includes the use of existing housing as part of a community revitalization plan' before the comma at the end of clause (iii); and

(2) by striking clauses (v), (vi), and (vii) and inserting the following new clauses:

`(v) tenant populations with special housing needs,

`(vi) public housing waiting lists,

`(vii) tenant populations of individuals with children, and

`(viii) projects intended for eventual tenant ownership.'.

(b) PREFERENCE FOR COMMUNITY REVITALIZATION PROJECTS LOCATED IN QUALIFIED CENSUS TRACTS- Clause (ii) of section 42(m)(1)(B) is amended by striking `and' at the end of subclause (I), by adding `and' at the end of subclause (II), and by inserting after subclause (II) the following new subclause:

`(III) projects which are located in qualified census tracts (as defined in subsection (d)(5)(C)) and the development of which contributes to a concerted community revitalization plan,'.

SEC. 503. ADDITIONAL RESPONSIBILITIES OF HOUSING CREDIT AGENCIES.

(a) MARKET STUDY; PUBLIC DISCLOSURE OF RATIONALE FOR NOT FOLLOWING CREDIT ALLOCATION PRIORITIES- Subparagraph (A) of section 42(m)(1) (relating to responsibilities of housing credit agencies) is amended by striking `and' at the end of clause (i), by striking the period at the end of clause (ii) and inserting a comma, and by adding at the end the following new clauses:

`(iii) a comprehensive market study of the housing needs of low-income individuals in the area to be served by the project is conducted before the credit allocation is made and at the developer's expense by a disinterested party who is approved by such agency, and

`(iv) a written explanation is available to the general public for any allocation of a housing credit dollar amount which is not made in accordance with established priorities and selection criteria of the housing credit agency.'.

(b) SITE VISITS- Clause (iii) of section 42(m)(1)(B) (relating to qualified allocation plan) is amended by inserting before the period `and in monitoring for noncompliance with habitability standards through regular site visits'.

SEC. 504. MODIFICATIONS TO RULES RELATING TO BASIS OF BUILDING WHICH IS ELIGIBLE FOR CREDIT.

(a) ADJUSTED BASIS TO INCLUDE PORTION OF CERTAIN BUILDINGS USED BY LOW-INCOME INDIVIDUALS WHO ARE NOT TENANTS AND BY PROJECT EMPLOYEES- Paragraph (4) of section 42(d) (relating to special rules relating to determination of adjusted basis) is amended--

(1) by striking `subparagraph (B)' in subparagraph (A) and inserting `subparagraphs (B) and (C)';

(2) by redesignating subparagraph (C) as subparagraph (D); and

(3) by inserting after subparagraph (B) the following new subparagraph:

`(C) INCLUSION OF BASIS OF PROPERTY USED TO PROVIDE SERVICES FOR CERTAIN NONTENANTS-

`(i) IN GENERAL- The adjusted basis of any building located in a qualified census tract (as defined in paragraph (5)(C)) shall be determined by taking into account the adjusted basis of property (of a character subject to the allowance for depreciation and not otherwise taken into account) used throughout the taxable year in providing any community service facility.

`(ii) LIMITATION- The increase in the adjusted basis of any building which is taken into account by reason of clause (i) shall not exceed 10 percent of the eligible basis of the qualified low-income housing project of which it is a part. For purposes of the preceding sentence, all community service facilities which are part of the same qualified low-income housing project shall be treated as one facility.

`(iii) COMMUNITY SERVICE FACILITY- For purposes of this subparagraph, the term `community service facility' means any facility designed to serve primarily individuals whose income is 60 percent or less of area median income (within the meaning of subsection (g)(1)(B)).'.

(b) CERTAIN NATIVE AMERICAN HOUSING ASSISTANCE DISREGARDED IN DETERMINING WHETHER BUILDING IS FEDERALLY SUBSIDIZED FOR PURPOSES OF THE LOW-INCOME HOUSING CREDIT- Subparagraph (E) of section 42(i)(2) (relating to determination of whether building is federally subsidized) is amended--

(1) in clause (i), by inserting `or the Native American Housing Assistance and Self-Determination Act of 1996 (25 U.S.C. 4101 et seq.) (as in effect on October 1, 1997)' after `this subparagraph)'; and

(2) in the subparagraph heading, by inserting `OR NATIVE AMERICAN HOUSING ASSISTANCE' after `HOME ASSISTANCE'.

SEC. 505. OTHER MODIFICATIONS.

(a) ALLOCATION OF CREDIT LIMIT TO CERTAIN BUILDINGS-

(1) The first sentence of section 42(h)(1)(E)(ii) is amended by striking `(as of' the first place it appears and inserting `(as of the later of the date which is 6 months after the date that the allocation was made or'.

(2) The last sentence of section 42(h)(3)(C) is amended by striking `project which' and inserting `project which fails to meet the 10 percent test under paragraph (1)(E)(ii) on a date after the close of the calendar year in which the allocation was made or which'.

(b) DETERMINATION OF WHETHER BUILDINGS ARE LOCATED IN HIGH COST AREAS- The first sentence of section 42(d)(5)(C)(ii)(I) is amended--

(1) by inserting `either' before `in which 50 percent'; and

(2) by inserting before the period `or which has a poverty rate of at least 25 percent'.

SEC. 506. CARRYFORWARD RULES.

(a) IN GENERAL- Clause (ii) of section 42(h)(3)(D) (relating to unused housing credit carryovers allocated among certain States) is amended by striking `the excess' and all that follows and inserting `the excess (if any) of--

`(I) the unused State housing credit ceiling for the year preceding such year, over

`(II) the aggregate housing credit dollar amount allocated for such year.'.

(b) CONFORMING AMENDMENT- The second sentence of section 42(h)(3)(C) (relating to State housing credit ceiling) is amended by striking `clauses (i) and (iii)' and inserting `clauses (i) through (iv)'.

SEC. 507. EFFECTIVE DATE.

Except as otherwise provided in this subtitle, the amendments made by this subtitle shall apply to--

(1) housing credit dollar amounts allocated after December 31, 2000; and

(2) buildings placed in service after such date to the extent paragraph (1) of section 42(h) of the Internal Revenue Code of 1986 does not apply to any building by reason of paragraph (4) thereof, but only with respect to bonds issued after such date.

Subtitle B--Private Activity Bond Volume Cap

SEC. 511. ACCELERATION OF PHASE-IN OF INCREASE IN VOLUME CAP ON PRIVATE ACTIVITY BONDS.

(a) IN GENERAL- The table contained in section 146(d)(2) (relating to per capita limit; aggregate limit) is amended to read as follows:

--------------------------------------------------------

                       Per Capita Limit Aggregate Limit 

--------------------------------------------------------

  2001                 $55.00           $165,000,000    

  2002                  60.00            180,000,000    

  2003                  65.00            195,000,000    

  2004, 2005, and 2006  70.00            210,000,000    

  2007 and thereafter   75.00            225,000,000.'. 

--------------------------------------------------------

(b) EFFECTIVE DATE- The amendment made by this section shall apply to calendar years beginning after 2000.

Subtitle C--Exclusion From Gross Income for Certain Forgiven Mortgage Obligations

SEC. 512. EXCLUSION FROM GROSS INCOME FOR CERTAIN FORGIVEN MORTGAGE OBLIGATIONS.

(a) IN GENERAL- Paragraph (1) of section 108(a) (relating to exclusion from gross income) is amended by striking `or' at the end of both subparagraphs (A) and (C), by striking the period at the end of subparagraph (D) and inserting `, or', and by inserting after subparagraph (D) the following new subparagraph:

`(E) in the case of an individual, the indebtedness discharged is qualified residential indebtedness.'.

(b) QUALIFIED RESIDENTIAL INDEBTEDNESS SHORTFALL- Section 108 (relating to discharge of indebtedness) is amended by adding at the end the following new subsection:

`(h) QUALIFIED RESIDENTIAL INDEBTEDNESS-

`(1) LIMITATIONS- The amount excluded under subparagraph (E) of subsection (a)(1) with respect to any qualified residential indebtedness shall not exceed the excess (if any) of--

`(A) the outstanding principal amount of such indebtedness (immediately before the discharge), over

`(B) the sum of--

`(i) the amount realized from the sale of the real property securing such indebtedness reduced by the cost of such sale, and

`(ii) the outstanding principal amount of any other indebtedness secured by such property.

`(2) QUALIFIED RESIDENTIAL INDEBTEDNESS-

`(A) IN GENERAL- The term `qualified residential indebtedness' means indebtedness which--

`(i) was incurred or assumed by the taxpayer in connection with real property used as the principal residence (within the meaning of section 121) of the taxpayer and is secured by such real property,

`(ii) is incurred or assumed to acquire, construct, reconstruct, or substantially improve such real property, and

`(iii) with respect to which such taxpayer makes an election to have this paragraph apply.

`(B) REFINANCED INDEBTEDNESS- Such term shall include indebtedness resulting from the refinancing of indebtedness under subparagraph (A)(ii), but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.

`(C) EXCEPTIONS- Such term shall not include qualified farm indebtedness or qualified real property business indebtedness.'.

(c) CONFORMING AMENDMENTS-

(1) Paragraph (2) of section 108(a) is amended--

(A) in subparagraph (A) by striking `and (D)' and inserting `(D), and (E)'; and

(B) by amending subparagraph (B) to read as follows:

`(B) INSOLVENCY EXCLUSION TAKES PRECEDENCE OVER QUALIFIED FARM EXCLUSION; QUALIFIED REAL PROPERTY BUSINESS EXCLUSION; AND QUALIFIED RESIDENTIAL SHORTFALL EXCLUSION- Subparagraphs (C), (D), and (E) of paragraph (1) shall not apply to a discharge to the extent the taxpayer is insolvent.'.

(2) Paragraph (1) of section 108(b) is amended by striking `or (C)' and inserting `(C), or (E)'.

(3) Subsection (c) of section 121 of such Code is amended by adding at the end the following new paragraph:

`(4) SPECIAL RULE RELATING TO DISCHARGE OF INDEBTEDNESS- The amount of gain which (but for this paragraph) would be excluded from gross income under subsection (a) with respect to a principal residence shall be reduced by the amount excluded from gross income under section 108(a)(1)(E) with respect to such residence.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to discharges after December 31, 2000.

TITLE VI--AMENDMENTS TO THE FAIR LABOR STANDARDS ACT OF 1938

SEC. 601. SHORT TITLE.

This title may be cited as the `Minimum Wage Increase Act of 2000'.

SEC. 602. MINIMUM WAGE.

Section 6(a)(1) of the Fair Labor Standards Act of 1938 (29 U.S.C. 206(a)(1)) is amended to read as follows:

`(1) except as otherwise provided in this section, not less than--

`(A) $5.15 an hour beginning September 1, 1997,

`(B) $5.65 an hour during the year beginning April 1, 2000, and

`(C) $6.15 an hour beginning April 1, 2001;'.

SEC. 603. EXEMPTION FOR COMPUTER PROFESSIONALS.

Section 13(a) of the Fair Labor Standards Act of 1938 (29 U.S.C. 213(a)) is amended by amending paragraph (17) to read as follows:

`(17) any employee who is a computer systems, network, or database analyst, designer, developer, programmer, software engineer, or other similarly skilled worker--

`(A) whose primary duty is--

`(i) the application of systems or network or database analysis techniques and procedures, including consulting with users, to determine hardware, software, systems, network, or database specifications (including functional specifications);

`(ii) the design, configuration, development, integration, documentation, analysis, creation, testing, securing, or modification of, or problem resolution for, computer systems, networks, databases, or programs, including prototypes, based on and related to user, system, network, or database specifications, including design specifications and machine operating systems;

`(iii) the management or training of employees performing duties described in clause (i) or (ii); or

`(iv) a combination of duties described in clauses (i), (ii), or (iii) the performance of which requires the same level of skills; and

`(B) who, in the case of an employee who is compensated on an hourly basis, is compensated at a rate of not less than $27.63 an hour.

For purposes of paragraph (17), the term `network' includes the Internet and intranet networks and the world wide web. An employee who meets the exemption provided by paragraph (17) shall be considered an employee in a professional capacity pursuant to paragraph (1);'.

SEC. 604. EXEMPTION FOR CERTAIN SALES EMPLOYEES.

(a) AMENDMENT- Section 13(a) of the Fair Labor Standards Act of 1938 (29 U.S.C. 213(a)), as amended by section 2, is amended by adding at the end the following:

`(18) any employee employed in a sales position if--

`(A) the employee has specialized or technical knowledge related to products or services being sold;

`(B) the employee's--

`(i) sales are predominantly to persons or entities to whom the employee's position has made previous sales; or

`(ii) position does not involve initiating sales contacts;

`(C) the employee has a detailed understanding of the needs of those to whom the employee is selling;

`(D) the employee exercises discretion in offering a variety of products and services;

`(E) the employee receives--

`(i) base compensation, determined without regard to the number of hours worked by the employee, of not less than an amount equal to one and one-half times the minimum wage in effect under section 6(a)(1) multiplied by 2,080; and

`(ii) in addition to the employee's base compensation, compensation based upon each sale attributable to the employee;

`(F) the employee's aggregate compensation based upon sales attributable to the employee is not less than 40 percent of one and one-half times the minimum wage multiplied by 2,080;

`(G) the employee receives a rate of compensation based upon each sale attributable to the employee which is beyond sales required to reach the compensation required by subparagraph (F) which rate is not less than the rate on which the compensation required by subparagraph (F) is determined; and

`(H) the rate of annual compensation or base compensation for any employee who did not work for an employer for an entire calendar year is prorated to reflect annual compensation which would have been earned if the employee had been compensated at the same rate for the entire calendar year;'.

(b) CONSTRUCTION- The amendment made by subsection (a) may not be construed to apply to individuals who are employed as route sales drivers.

SEC. 605. EXEMPTION FOR FUNERAL DIRECTORS.

Section 13(a) of the Fair Labor Standards Act of 1938 (29 U.S.C. 213(a)), as amended by section 3, is amended by adding after paragraph (18) the following:

`(19) any employee employed as a licensed funeral director or a licensed embalmer.'.

Passed the House of Representatives March 9, 2000.

Attest:

JEFF TRANDAHL,

Clerk.

END